LAWRIE WILLIAMS: Gold consolidates poised to attack $1,300 again

Despite seeming efforts by the powers that be to keep the price under control, gold keeps bouncing back up into the $1,290-$1,300 range.  It cannot be long before the latter level is breached, and breached comprehensively.  The force seems to be with gold yet again and this time it hopefully will not be found wanting.

At the moment the dollar gold price appears to be dependent on the strength or otherwise of the mighty dollar itself.  Recently the dollar has been showing occasional signs of weakness compared with a couple of months ago, but attempts to keep it from falling excessively have so far been successful but one suspects gravity will prevail as U.S. data indicators seem to be turning negative.  U.S. equities are volatile after a series of upwards corrections following the heavy falls in December and early January but there does seem to be considerable intra-day down and up movement in the key North American markets, while Asian and European bourses remain significantly nervous suggesting all is not well with the global economy.

Bitcoin has taken another leg down - again after a small recovery.  Bitcoin is a pure speculation and the momentum for speculators has turned negative.  We thus expect it to fall further all things being equal.  Be especially wary of some of the mini-cryptocurrencies like Ethereum.  This has seen a bit of a rally but if its big brother continues weak it could come down with bang - perhaps to under the $100 level and even back to near zero again.

So where does this leave gold?  As noted above it seems to have been consolidating in the high $1,280s and low $1,290s poised to hit $1,300 and go higher in the near future we think.  But for much of the rest of the world, earlier dollar strength has meant the gold price has actually already been doing rather well.  As my colleague Ross Norman points out in another article published here a couple of days ago (Gold hits an all time high in 72 currencies) : Popular belief has it that gold prices have not performed especially well despite some egregious geopolitical and economic factors. Well measured in 72 currencies, gold is at ... or within a few percentage points ... of being at an all time high for people in those countries. Not on the list are the British Pound, the Swiss Franc, the Euro and Chinese Yuan - but we are not far off in all of those currencies too. Only in USD does gold lag - and not all of us live in the US. Using the dollar gold price, as most of us do, has disguised what is actually quite a powerful bull market. If my memory serves me right, we saw the same phenomenon - a stealth rally in minor currencies - ahead of the last major gold bull run (in dollars) in the late 1990’s. Arguably this may be a very good leading indicator.

In other words gold has been serving its purpose as a wealth protector in much of the rest of the world outside the USA and even in America it has been holding its own.  True it fell last year by around 4%, but equities fell by more over the full year which saw gold as a better bet long term.  Indeed since the turn of the Century gold has outperformed equities comfortably despite its ups and downs and record equity prices.

Thus we see positive momentum in the gold price which could well soar once the psychological $1,300 barrier is breached - and we see this as a when, not an if.  We suspect the powers that be are attempting, successfully so far, to keep the gold price under control to protect the perceived value of the dollar, but market forces will likely prevail and we foresee substantial weakness in equities and bitcoin ahead, accompanied by a gold price surge in the current year.  We certainly don’t see a 2019 gold price of $1,400 or higher as out of reach.  Mind you we were wrong in 2018 and could be again - but it’s only a matter of time before gold comes int its own!

17 Jan 2019

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).

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