LAWRIE WILLIAMS: All fall down - EXCEPT gold

As I write a little after the New York market openings on Monday 19th November, virtually all markets are trending downwards – except for gold, which has been gaining, but only marginally, perhaps partly in line with the fall in the U.S.dollar index. So, the dollar is down, as are equities in general. Even bitcoin is showing some sharp further losses despite a seemingly concerted campaign to talk it up over the past few weeks. Platinum is up a little too, though, as I write, although not sufficiently so to be significant. Palladium and silver have both been falling back a little. The former from its peak on Friday, but fundamentals for the metal are perhaps the strongest among all the precious metals and we doubt the adverse price correction will be maintained as it moves ever nearer to vie with gold for the precious metals top price tag.

We can’t say we are surprised at the market movements, up or down. Gold had looked to be oversold. There does seem to be a futures market effort to prevent it breaking up through its 200 day moving average and we have been long expecting a significant downturn in U.S. equities and bitcoin – the questions in our minds being when, not if, and by how much when it does happen. It is probably to early to tell if a true bear market lies immediately ahead, but the Dow, S&P and NASDAQ are all behaving nervously at the moment and daily downturns could turn into a rout at short notice. The Dow and S&P 500 are both down around 1.5% + as I write and NASDAQ around 2.5% reflecting a bit of a sell-off in tech stocks in particular which have been looking overbought.

As for bitcoin – BTC had been sitting comfortably in the $6,500 to 7,000+ range for several weeks, defying its usual volatility, but it has dropped back over $1000 in the last couple of trading days and is possibly falling further towards $4,000. Think back to the end of 2017 when euphoric trading had taken it to almost $20,000.

Of the smaller crypto players, Ethereum seems to have been particularly hard hit currently trading between $150 and $160 after a long stint above the $200 level. Remember too, it peaked at over $1,250 back at the beginning of the year. Its crash has been quite spectacular, as has that of virtually all the smaller cryptos. Those among you who have read my commentaries in the past will know I am no believer in the crypto market and I would not be at all surprised to see further substantial falls with BTC coming down below $1,000 and the smaller cryptos back to near zero over the next few months.

But how about gold and silver? Global annual gold output is probably turning down at long last (peak gold) – or has at least plateaued – and any downturn could accelerate given the gold majors have mostly been limiting greenfield exploration and cutting back on major capital projects. If there is something of a global recession, investment demand could suffer, but general population growth – particularly in the traditional gold buying nations in the East and Middle East - together with an ongoing upscaling of wealth classes, should keep global demand on the up. Long term we have always felt gold has a positive future – it just seems to be a long time for market realisation to set in.

As for silver, the gold:silver ratio (GSR) is remaining stubbornly at around the 85 level and above. Silver’s fundamentals are not brilliant, depending on whose figures one takes – GFMS still puts it in surplus for example, although this is denied by some other interested parties. So there’s perhaps no great push to bring the GSR down from its current historically high level, although we still think this will happen sooner rather than later. However this may take a break-out for gold from its current level to stimulate its less costly sibling to make a move.

The gold market does seem to be tightly controlled at the moment – by fair means or foul – see our recent article on spoofing and manipulation (Gold price manipulation and spoofing – is this the norm?). The markets are prone to big money taking what appears to be an unfair advantage over price control – but was it ever thus?

We still hope/anticipate for something of a gold price upwards break-out by the year-end, but short of the U.S. Fed changing tack on raising interest rates in a month’s time, we are running out of time to see this happen by the year end. We shall have to wait and see.

 

19 Nov 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com