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LAWRIE WILLIAMS: Gold: $1,200 breakthrough but not held - but next week?

The gold price broke upwards through the $1,200 psychological level on Thursday in New York, but was unable to maintain this ending the day at $1,195.  It made another tilt at the $1,200 level on Friday, but fell short and ended the week in New York at $1,196.90 – up around $20 on the week.  The overall trend is upwards and if there are any more lurid disclosures on Donald Trump’s private life and/or financial irregularities from his past – whether true or fabricated – in the week he is due to be inaugurated as the USA’s 45th President, there has to be a good chance that the $1,200 level will be breached again, and held, during the forthcoming week.

With Shanghai pushing the gold price ever higher, the price difference with London and New York came down to not far short of the price premium due to the higher gold purity of the Shanghai contracts (0.999% Au content) vis-à-vis London Good Delivery gold (0.995%), which amounts currently to around $6 an ounce.  Thus Shanghai prices are coming down to London and New York levels – or perhaps London and New York coming up to Shanghai levels depending on how one looks at this – after around two months of big premiums in Shanghai.

Sales out of the big gold ETFs also seem to have halted – GLD for example actually added 2.96 tonnes at the end of the week after remaining static the previous four days, following almost six months of mostly continuing falls (holdings peaked on July 5th at 982.72 tonnes; since then they had fallen by almost 133 tonnes until Friday’s small increase).  Whether this indicates a change of sentiment in gold’s favour is probably too early to say, but one suspects uncertainties surrounding the Trump Presidency and his policies, and whether even his Presidency will run full term given the political antagonism it has generated, some of which is coming from within the Republican Party which he is representing as well as from the Democratic opposition, mean that gold’s safe haven reputation may be coming into play.

Certainly, assuming President Trump takes office on Friday, one suspects he will have a very rough ride in Congress in trying to push his proposed policies through.  There are already indications of differences in some key opinions between him and some of his chosen Cabinet members.  There has been something of a euphoric, and probably unjustified, jump in equity markets in the runup to him taking office.  Will this survive the actuality?  Will the Fed raise interest rates quickly, as it intimated it would, in the light of all these uncertainties?  Any perceived faltering by the Fed would definitely be gold positive.  We have already expressed a doubt whether the Fed will make any moves until mid-year in an attempt to judge how Trump policies are working out.  And if the US economy does not seem to be performing by then the three or four projected interest rate rises in 2017 may yet be put on hold once more.

Outside the US the Eurozone will start to weigh up seriously the ramifications of the UK’s exit; a potential for more terrorist attacks in European cities as Islamic State is eventually forced out of its Syrian and Iraqi strongholds; confrontations with China over trade and its sabre rattling in the South China Sea – and with North Korea and its reported expanded nuclear capabilities – are making this an ever more uncertain world.  And undoubtedly some new geopolitical or geo-economic black swan events will rear up – perhaps in Latin America, Africa or elsewhere in the Middle East or Asia.  All of these, and perhaps more, are looking gold positive.  Don’t bet against further gold price increases in the year ahead whatever the gold bears may tell you.

14 Jan 2017 | Categories: Gold

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