LAWRIE WILLIAMS: Christmas cheer for gold as it breaches $1,480 brick wall

Try as it may to advance further, the gold price had seemed to be hitting ultra-strong resistance at the $1,480 level despite events that would normally suggest it should move higher.  For example, the price barely moved on the U.S. House of Representatives decision to go ahead with impeachment proceedings against President Donald Trump.  While this process is almost certainly doomed to fail in the Republican-dominated Senate, where a two-thirds majority would be needed to remove the President from office, the House decision should have created sufficient uncertainty to move the gold price up a few notches.  However in the runup to Christmas gold did achieve something of a re-rating.  Whether that wil;l hold into thye New Year and beyond still remains to be seen, but based on gold’s January performance over the past few years it should do so.

In its December performance up until the past couple of days, some economic and labour statistics which might have, in the past, moved the yellow metal’s price upwards, passed without any significant impact. Meanwhile reports that Islamic State may be regrouping in Iraq, thus raising geopolitical concerns, and Congress’s somewhat controversial moves to approve the imposition of stronger sanctions against the Nordstream 2 pipeline may just raise the spectre of Russian retaliation.  While the U.S. economy is obviously far stronger than that of Russia observers might well ask what is the point of these sanctions given that Russia still manages a current account surplus while the U.S. only seems to be managing to increase its debt burden.  Moves that will likely reduce U.S. technology and services exports to the Russian Federation could thus be self-defeating.

Russian tit for tat sanctions – promised but not so far announced -  may not only impact those American companies which do business there, but will likely just increase Russia’s determination to shut down any remaining U.S. trade thereby increasing the latter country’s self-sufficiency.  President Trump’s big stick approach to diplomacy might work in business where short term profitability is the principal driving force, but not necessarily on the international geopolitical front where long termism is often an even more important driver.

But this is Christmas week and gold followers have certainly been receiving a bit of Christmas cheer.  The market may be thin with some traders already on holiday, but the gold price has seemingly broken out through its $1,480 brick wall and closed ahead of Christmas Day a fraction below $1,500 – a level not seen for several weeks, thereby surpassing both its 50-day and 100-day moving averages.  This is taken as a very bullish sign by the technical analysts and if the yellow metal can end the year at this kind of level, the portents for another January rally – as has been the case for the past four years – could be on the cards again.  Whether this can take the gold price back up to the $1,550 plus level remains to be seen. But it could well engender a good improvement in sentiment towards gold, leading to stronger Q1 2020 prices, particularly if the price can also break back up through the psychological $1,500 level.

One should also not forget the silver price which has been performing better than gold through the latest rally.  At the time of writing silver is sitting at around the $17.75 level and the Gold Silver Ratio (GSR) has come back down to 84.5.  If gold continues to move upwards we could probably expect silver to move up a little faster and the GSR to come down further – to 82 or even lower if gold moves comfortably back over $1,500.

So, some Christmas cheer for gold investors.  Analysts, including this writer, are widely predicting a move to above $1,600 in 2020 as likely, but the yellow metal largely remains U,S, data driven.  It doesn’t look like the U.S. Fed is planning any interest rate rises or cuts in the near future, but there remain a number of geopolitical uncertainties any of which, should they occur, could give the gold price a sharp boost and make the aforementioned analysts’ predictions conservative ones.

 

25 Dec 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