LAWRIE WILLIAMS: Gold and silver recover from earlier falls despite rise in USDX
In the wake of the activity in the gold price over the past few months, one could be forgiven for doubting the ongoing strength of the most recent rally. If one looks back over recent gold price movements, one can take note that the price has varied over the past couple of months between the $1,760s and the high $1,820s/low $1,830s. Each time the price has dipped towards the lower of these levels, it has recovered back to above $1,800, yet it has also failed to maintain what one might consider its rightful price level of $1,800 and higher unless you are a true gold price bear.
In mid 2021 the gold price even broke above $1,900, albeit briefly, before being brought back down very sharply initially to the $1,760s before making a couple of attempts of price recovery, but then plunging below $1,720 as recently as August. It then made several efforts at recovering back above $1,800, but was invariably brought back down to below $1,760 again before rising back above $1,800 on a couple of occasions late in the year and early in 2022, before achieving what looks like it may be a more permanent base above the $1,800 level. Whether it holds this base level this time around remains to be seen, but we think there is a good chance that current economic pointers suggest this base should hold.
Likewise, the silver price has seen recent strength putting it back above $23, although it has fallen below $22 on one occasion back in September. The chances of it holding its current $23.40 level are perhaps not as strong as those of gold remaining above $1,800 given silver’s higher price volatility, but overall we feel that the chances of both major precious metals retaining their gains, and even progressing onwards and upwards as the year unfolds, are reasonably good, particularly in the current high inflation financial environment.
The US Federal Reserve (the Fed) is likely to start raising the Federal Funds interest rate, which affects all other US interest rates, at least by the mid-year, and possibly earlier. But initial contemplation by the markets that an earlier date, perhaps March, may be most likely for the commencement of interest rate rises seems to be hitting the perhaps over-egged equity markets harder than those of gold and silver. Whatever the Fed does on interest rates, though, it is hugely unlikely to do enough to counter negative real interest rates (where interest rates remain well below the inflation rate) which is seen as positive for gold and silver – particularly if equity indexes fall as a result of Fed interest rate policy.
Indeed global equity and bitcoin price dips today look to also be benefiting precious metals which are appearing to be the stronger asset class, at least for now. The gold price dipped initially to as low as $1,805 in Europe, but has been recovering back to prior levels towards $1,820 despite a rise in the dollar index (USDX) which is usually seen as a negative for gold and silver prices. Silver is, as we write, sitting at around the $23.40 level after hitting $23.70 earlier.
Things can move rapidly in the North American market, particularly once trading on the COMEX futures market progresses, so perhaps it’s too early to say yet how prices will pan out over the full day. But overall things look to be positive for precious metals in contrast to a more negative outlook for equities.