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LAWRIE WILLIAMS: Gold consolidating, silver slips but now could be make-or-break time

The consensus of most mainstream analysts at the end of last year was that general equities would continue to rise, the U.S. Fed would raise interest rates three to four times in 2016, the dollar would strengthen, oil and industrial metals would continue on their downwards path, as would precious metals.  Every single one of these assumptions has been turned on its head in the first four months of 2016.  Equities are in a nervy state and could be set to plunge; the Fed is dithering over the next rate increase – some reckon it won’t raise rates even by another 25 basis points until much later in the year, if then; oil and metals and mineral commodities are beginning to pick up, while gold and silver have soared being the best performing asset classes of all this year to date.

But are gold and silver now taking a breather?  Gold made two attempts to get above the $1,300 an ounce level in the past week, but was brought back each time.  But unlike previous takedowns, so far the falls have been relatively limited to $20-30 from the achieved peaks.  Silver had been doing even better, but as is its wont when gold stutters, silver stutters more and the gold:silver ratio (GSR) has moved up a little, from near 72 to over 74, having come down from 84 earlier in the year.  Silver is still trading above the 17 level but has been slipping percentage wise in relation to gold.

The question is, is this a portent of the May-August weakness in precious metals prices building up with prices continuing to slip back as the Summer doldrums set in, or just a consolidation that presages another upwards movement taking the gold price well into the $1,300s?  We think that the evidence so far suggests the consolidation mode with another attack on the $1,300 level imminent and the next time the breach could well hold taking the price up to the $1,320s or higher.  Should this take place then the GSR could start to come down again, taking silver up to the $18 level and higher.

One needs to keep an eye on the big ETFs – notably GLD and SLV – as an indicator of where the momentum lies, and any continuing weakness in general equities could also help gold and silver.  Asian stocks have been diving the past couple of days and European stocks are again trading significantly lower today after some hefty falls yesterday.  U.S. stock indices were also down yesterday.  The dollar is a little stronger today, which won’t have helped the gold price either.

It is perhaps make-or-break time for precious metals – at least as far as the recent positive price movements are concerned - but there’s little sign of any significant turndown yet.  Asian demand should be beginning to pick up after a weak start to the year – we’ve already seen some of this with the most recent Hong Kong-China gold trade figures and available physical gold, by a number of admittedly anecdotal accounts, remains in short supply.  We don’t believe the new bull market in gold is by any means over yet.

04 May 2016 | Categories: Gold, Silver

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