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LAWRIE WILLIAMS: Gold aberration! It should be higher.

A little over a week ago, the gold price soared above $1,950 and we speculated that it might be on its way back to $2,000 and above.  It was not to be this time.  The $1,950 level again proved to be a step too far for the various forces aligned against a gold price advance and the yellow metal’s price was rapidly brought back down below $1,900 – and then some - closing the past week at its lowest level for a few weeks, and down to the persistent low levels of July last year and earlier.  Notably it had recovered quite strongly in December from its late November low point of below the $1,800 mark. But the rise through the end of 2020, and the first week or so of the current calendar year, looks like it was too much for the anti-gold element to contemplate. 

With the U.S. currently the major driver of precious metals pricing activity, what happens there will likely be key to global pricing over the next few months.  We think gold will recover, and break back through $1,950 and then $2,000 sooner or later.  Indeed we expect the $1,950 level could be achieved again within the next month and $2,000 perhaps by the mid-year point.  This may come even sooner if the U.S. descends into the kind of anarchy suggested by the recent Capitol invasion if avid armed Trump supporting militias continue to aggressively deny November’s election results.  This would in all likelihood hit the dollar index, and the U.S. equities markets, hard and drive some investment capital into traditional safe havens like gold.

As we have noted before, silver could be an even bigger beneficiary than gold in terms of percentage increases, but a look at the charts will see that its price has followed a far choppier path than gold in the past few months.  It is much more of an industrial metal nowadays and with the huge recent levels of new coronavirus infections and deaths seen in the U.S. any lack of industrial growth in the U.S. economy as a result would likely mitigate any advances in the silver price.  This is not to say that silver won’t advance alongside gold if the latter does rise in the months ahead, but just that any price increase may not be as rapid, or as great, as silver investors might anticipate.

Of course the old chestnut of gold price manipulation or suppression comes into play here.  Is gold’s lack of performance in what looks to be a positive pricing  environment hindered by government and/or central bank generated influences?  The jury is still out on whether this is the case or not, but we would say here that it would hardly be surprising if this was happening today through proxy arrangements between the U.S. Government/Fed and other central banks and their allies at the big bullion banks. 

The late Paul Volcker, probably the most outspoken chairman of the U.S. Federal Reserve in recent years, was once quoted as describing gold as ‘the enemy’ in that a rising gold price could also be seen as an adverse reflection on the global performance of the mighty dollar and a reduction in its purchasing power.  Indeed Volcker played an important role in – some say he was the architect of - President Nixon's decision to suspend gold convertibility of the dollar in 1971.  There is certainly written evidence, as publicised by organisations like GATA, that the U.S. may well have been involved in trying to suppress the gold price back in Volcker’s days in the U.S. Treasury Department and as Fed chairman.  Whether this continues to this day remains open to argument.

Even if there is a degree of gold price suppression being played out in the futures markets today, gold eventually tends to find its own level.  As we have said before, there may well be some limited acceptance of this by the powers that be and, if there is indeed officially-sanctioned price manipulation, a slow gold price rise may be allowed regardless.  This would reduce the realisation that the dollar was an inherently weak currency.  With so many other global currencies tied to the dollar the suggestion of such currency weakness might be seen as unacceptable worldwide. 

However all this could be exacerbated by any serious domestic unrest in the U.S. so the next few days should be watched carefully to see if there are any signs that pro-Trump, anti-Biden, demonstrations may be getting out of hand.  The FBI has warned that there could be serious unrest developing by Presidential inauguration day on Wednesday in all 50 U.S. states.  If there are indeed such problems in even a handful of states, the gold price could receive a major boost.  The world will be watching closely. 

17 Jan 2021 | Categories: Gold

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