LAWRIE WILLIAMS: Can gold’s breakout be sustained?

 

Well yesterday’s price action in precious metals turned out to be something of a bull’s dream.  The whole complex moved substantially higher, and though palladium and rhodium may have seemed the key players with some substantial dollar price increases, gold surged through what many analysts have seen as the key $1,365 level.  Silver meanwhile, perhaps the most out of favour of the precious metals, showed a very substantial gain in percentage terms of nearly 4% in US dollar terms so far this week.  With the gold:silver ratio still languishing at over 90 silver’s potential, should the gold price continue upwards, may just be beginning to show itself.  But then silver can be the most erratic metal in the precious metals complex and can thus be the most dangerous to invest in, although potential percentage gains are the highest for those who like a price gamble.

We have noted here before that there would seem to be a number of economic and political factors predicating that gold has a strong short term future – and where gold goes the other precious metals tend to follow.  But the triggers which created the latest surge were statements from the heads of the U.S. Fed, and of the European Central Bank both suggesting that the next move in interest rates on both sides of the Atlantic are likely to be downwards.  While this was hardly unexpected, the twin official confirmations of this likelihood was sufficient to move the markets quite substantially.  Add to that a tweet from the U.S. President taken as suggesting that the next stage in his Make America Great Again policies, following on from his tariff and sanctions impositions, could well be a currency war, and the markets were well and truly affected.  A likely loosening of interest rate policy by the Fed and the possibility of a forced down U.S. dollar boosted both equities and precious metals.  It remains to be seen how the all-important U.S. markets in particular take things when they open today.  Asian and European equities have been rising, as has the gold price after an initial dip, but will this be sustained in the cool light of the American day!

There may well be a downwards reaction once the U.S. markets open, but we feel this will probably be shortlived and gold, and the other precious metals will, after a period of consolidation continue their upwards movement throughout the northern hemisphere summer months, albeit with the occasional setback.  If this is indeed the case then the consensus gold price forecasts for the second half of the year will likely be overtaken – perhaps in the next few weeks even.  We certainly wouldn’t be surprised to see many bank and other analysts increasing their forecasts for the gold price in the second half of the year to $1,500 or above.  But the powers that be may well try and put a stop to what might be seen as an excessive condemnation of the strength of the U.S. dollar and force prices back.  But if President Trump is serious about weakening the dollar in the light of key competitive nations weakening their own currencies to gain a trade advantage, then the upwards momentum for gold – in U.S. dollar terms, which is the way the world sees it – may prove to be unstoppable making even a $1,500 price forecast for the second half of the year well within reach!  We shall see what transpires.  The next few days may be critical.

20 Jun 2019

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