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LAWRIE WILLIAMS: Gold bears play while Chinese away

Arguably Chinese gold demand, which remains high according to almost all accounts, tends to be a stabilising influence on the gold price with the twice-daily Shanghai fixes having their own impact is steadying price rises and falls.  Thus when the nation goes on holiday for a week, as it is now for the Chinese (Lunar) New Year which was on the 16th, followed by a week-long holiday, it gives gold bulls and bears around the rest of the world a great opportunity to drive the market in their own preferred direction.

In the latest instance the results of this have seen some pretty volatile precious metals price movements – initially upwards, but the bears have since moved into the ascendancy and we saw some sharp falls headed into the weekend, where gold was not allowed to close above the $1,350 level which had been threatened.  This week so far the bears have built on their advantage with the price coming down into the $1,330s.

When the Chinese return to the market there will likely be something of a buying surge – there’s nothing like lower gold prices to stimulate Chinese demand.  However whether this will be sufficient to reverse the price momentum yet again and bring gold back to the $1,350 level and above yet again is rather less certain.  Probably eventually, but perhaps not immediately.  Equities markets and bitcoin both appear to have halted their very sharp declines, although perhaps not yet decisively so, which may be driving unwary investors back into what they perceive to be the return of the bull in these market sectors.

We would advise against backing equities and bitcoin again – at least for the time being.  Their recent huge falls will have destroyed a degree of confidence in them and it won’t take much in the way of perceived bad news to bring them crashing back down again. They may recover, but both appeared to be in bubble territory and there is certainly the possibility that the real falls have not fully occurred yet.

Precious metals may have their ups and downs, but they do tend to be less volatile than equities and bitcoin so are probably safer bets in terms of wealth preservation.  They may not see the levels of gains that bitcoin and equities have the potential for, but don’t have the massive loss potential either.  Gold has, over time, been the most reliable wealth protector and while we may not subscribe to the massive gain predictions seen by some other commentators we do see steady overall growth ahead. Good advice is keep some of your wealth in gold – perhaps 10-12.5% - and it will help iron out the downturns.  Because equities have seen big rises over the past few years don’t rely on these continuing ad infinitum.

20 Feb 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

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