LAWRIE WILLIAMS: Equities plunging further, bitcoin and palladium too. Is this the boost gold needs to resurrect its mojo?

When does an equity correction turn into a rout? We may be seeing just such a phenomenon now with the Dow, S&P500 and NASDAQ following European and Asian stocks sharply downwards today.  Bitcoin is also collapsing further with BTC heading down towards $3,500 and ETH dropping below $100. After its big recent runup, palladium is down sharply too, perhaps confirming its status as an industrial metal - after all if the economy is turning down, as the markets may be suggesting, the palladium demand likely will too.  If anything should start to drive safe haven investment back into gold this may be it.

The big question now facing Wall Street is will the Fed blink at the FOMC meeting in two weeks’ time and delay the December interest rate increase - which seemed almost a 100% certainty only a couple of weeks back. The Fed may be nervous that its tightening program may be blamed for the equities downturn and for forcing the U.S. economy into recession and reduce its tightening program as a result.  It has already intimated it may be reducing its planned number of interest rate rises next year.

If the Fed does hold back on increasing rates at its December meeting, the gold price could really take off into the year end.  With U.S.equities falling and the gold price rising, if this happens, we could end the year with gold’s price performance matching that of U.S. equities, after lagging them quite substantially since early April.

But, of course, we may see an equities bounce, although I fear bitcoin will continue its downward path - perhaps to oblivion.  And any rise in the gold price seems to be being well-controlled despite a falling dollar.  The powers that be do not want gold to take off in the manner suggested and may be doing all they can in the paper gold futures markets to mitigate any gold price surge.  But they may yet wilt under the pressure should equities and the dollar continue their decline.

We will have to wait and see what develops between now and the year end.  Some observers are already calling a bear market in development, but it is early days yet.  While we believe there will b e a massive equities market pull back sooner rather than later, this may not yet be it, although the signs are ominous.

Only three days ago the markets seemed to be breathing a sigh of relief as Presidents Trump and Xi appeared to be presiding over an apparent trade tariffs ceasefire.  But further examination of their ‘agreement’ to postpone any further increases for 90 days saw little concrete evidence that anything has, in fact, changed.  Some aggressive tweets from President Trump look to have raised the ante, and now the very high profile arrest, and possible extradition to the U.S., of Chinese company Huawei’s CFO, Meng Wanzhou, in Canada to face Iran sanctions-busting charges has put another disquieting factor into the mix and has to have been partly responsible for the Wall Street downturn this morning.  That gold has also fallen back quite sharply in today’s trading. Is something of a mystery though and will be grist to the mill of those who see the gold markets as being heavily manipulated.

06 Dec 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