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LAWRIE WILLIAMS: Gold cuts through $1,250 level, silver through $18

Trading this morning in Europe saw gold surge comfortably through the $1,250 psychological level – a target it had not been able to achieve with any consistency of late – it is sitting at $1,255 as I write having briefly touched $1260 in the spot markets, but fell back a few dollars when New York opened.  Perhaps even more significant was silver’s breach of the $18 level - $18.29 as I write.  That had been another sticking point for the metal during periods of strength over the past few weeks.  Whether the precious metals will be allowed to hold these levels once COMEX trading kicks in in strength in the U.S. remains to be seen!

So what has happened to generate this additional pricing strength?  Perhaps the beginnings of the realisation in the U.S. – as it’s the U.S. currently driving the gold price – that President Trump for all his slew of Executive Orders, is unlikely to be able to ‘fix’ the American economy quickly, nor is any resulting infrastructure spending likely to kick in until much later in the year – if then.  He has also been making it clear that he is looking for a weaker U.S. dollar, which could see a delay in any Fed interest rate rises as higher interest rates could presage a rise in the dollar index if other key areas and nations like Europe and Japan don’t follow suit – and there’s no indication that they are likely to.  U.S. unemployment figures are not helping either with a rise in the unemployment percentage while political uncertainties at home and abroad are increasing the safe haven attraction of precious metals.  To an extent this has been expressing itself so far this year with a rise in gold holdings in the big gold ETFs, although it is perhaps worth pointing out here that the holdings in the world’s largest gold ETF – SPDR Gold Shares or GLD – have remained static for the past working week.  One suspects that if the gold price gains seen so far today hold when U.S. markets open we may well see some renewed purchases into GLD.

There is a danger for the gold investor here in that January and February tend to be stronger months for the gold price, and gains may tail off as the year progresses as they did last year.  But we think that gold’s overall performance last year and its price increase so far this year signifies a major shift in investor, and potential investor, sentiment putting it firmly in institutional sights again, after it had fallen out of favour from late 2012 to end-2015.

The possibility of the weaker dollar has also given gold a boost – the yellow metal’s price is seen as inversely proportional to dollar strength.  The other factor keeping gold stronger is that of effectively negative interest rates.  Even if the Fed does raise rates in March or June, as many still anticipate, this is only likely to be done should inflation be seen as increasing.  It is currently officially at 2.5%, and rising,  while the Fed Funds rate is at a mere 0.75% while a 25 basis points rise at the March meeting in 3 weeks’ time would only take it to 1% - still well below the inflation rate.

24 Feb 2017 | Categories: Gold

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