LAWRIE WILLIAMS: Could gold hit $1,300 this week?

In answer to the question posed in the title – yes it could, but will it?  Gold has moved up through resistance levels and probably the next target is indeed the psychological $1,300 level, but there are several near at hand factors which could affect the price outcome one way or the other.

Overhanging the market is next week’s FOMC meeting at which the U.S. Fed is still widely expected to announce another 25 basis point rise in US interest rates despite some disturbing non-farm payroll figures announced last week.  While the absolute figure was below market expectations, the even more unexpected sharp downgrades of the previously announced payroll figures for March and April were perhaps the principal reason for gold’s sharp upwards move at the weekend.

Nearer at hand is this week’s UK election where the currently in-power Conservative party has seen a seemingly unassailable poll lead dwindle to a point where, if the pollsters are not to have egg on their faces again, a loss of an overall Parliamentary majority looks to be a distinct possibility.  Indeed the previously seen-as-unelectable Labour party under Jeremy Corbyn – a maverick hard left winger - seemingly has the momentum which could even result in a huge shock change in power, or a hung parliament with no main party having an absolute majority.  Coalition government is probably out of the question given how much damage the coalition with David Cameron’s Conservatives did to the Liberal Party.

Now a post Brexit UK is perhaps not that significant in comparison with the U.S. and China in terms of GDP and political clout for example but it is still the world’s fifth largest economy.  Thus a hard left socialist UK government led by a pacifist would perhaps be the ultimate black swan event calling all sorts of political alliances into question.  We don’t think that will be the likely outcome of the UK election, but it is certainly not outside the bounds of possibility, and if it should happen then a flight to a ‘safe haven’ like gold might well be on the cards – and the UK election takes place this week!

Meanwhile the overseas tranche of the French Parliamentary election also takes place on Sunday (the domestic tranche is a week later).  While polls currently suggest that Emmanuel Macron’s fledgling En Marche party may win a decent majority it is coming from zero so nothing is certain here either.  France is the world’s sixth largest economy.  Potential Black Swans are proliferating!  And this is not to mention President Trump’s U.S. domestic trials and tribulations. – perhaps next week’s FOMC meeting will, pale into insignificance, drowned out by geopolitical events.

So what’s the conclusion here?  The next two weeks could see substantial political and economic turbulence.  There has to be a strong chance that the gold price will benefit from all the uncertainty abounding and yes, the price could, as a result, breach $1,300.  It is already edging up this morning having breached $1,280 and all eyes will be on the U.S. markets when they open.  The dollar index is below 97, Asian and European equities are looking nervous – all the ducks are lining up!  So don’t write off $1,300 gold being hit this week despite a likely Fed rate increase next!  And if that latter doesn’t happen – then $1,300 could just be the beginning of a mid-year gold price surge.  But if none of the black swan events happen and the Fed does raised interest rates, then the big money in the U.S. will likely knock the price back down again.  Same old, same old.

05 Jun 2017

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