LAWRIE WILLIAMS: Gold ends week above $1,200. Is the bottom in yet?
The gold price managed to end the past week above the $1,200 level, but still a little below its 50 day moving average, although it did manage to breach that line intra-day, so it is close. But the big question is is it there to stay, or will it turn down again and test its recent low of around $1,183 again?
We have read a number of gold commentaries suggesting the bottom is in on numerous occasions during gold’s decline from above $1,350 earlier in the year, with most such forecasts being overtaken by further declines within a very short space of time. But this time around it does look like there may have been a firm bottom in the low $1,180s. But as we noted in an earlier article this past week, gold has been struggling to remain consistently above the $1,200 level, despite continuing buying pressure.
Goldhas been range bound for most of the past few days between around $1,190 and $1,210 being unable to break out in either direction so far. There are certainly short term headwinds making it difficult for gold to exit of this pattern. The dollar generally has remained fairly strong; the U.S. economy is purported to be sufficiently strong to allow the Fed to initiate another small interest rate increase in December, with three or four more next year, while the effects of the various trade tariffs being imposed by the Trump administration are still seen as being positive for the U.S. economy, although once the likely inflationary effects kick in this perception could reverse. There has also been some settlement in terms of the rehashing of NAFTA as the USMCA (U.S., Mexico, Canada Agreement which promises trade stability between the three North American nations, although when the small print is examined in detail it may leave the participants unhappy with the likely outcome.
The general equities markets have been going on to new records, which has been negative for gold in that investors see better returns elsewhere for now. However we did see some hefty falls at the end of the week, but the big gold ETFs are still seeing withdrawals suggesting funds/institutions are still wary of precious metals. If funds start moving back to the ETFs that would be a good sign that we could be at a turning point.
Longer term, though, things look a little more positive for gold. U.S. total debt and monthly deficit seems to be accelerating; central bank gold buying appears to be increasing; the dollar may be in the process of being downgraded as the world’s reserve currency (although if this is the case it could take a long period of time for this to be unwound in any significant proportion); peak gold production is with us, or close; and precious metals demand appears to be rising in the key Asian and Middle Eastern markets which absorb most of global production, although some of this strength may be due to bargain hunting alongside the lower price levels we have been seeing recently.
So gold remains in a bit of a tug-of-war between the short term headwinds and longer term positives. Much will depend on the strength, or otherwise, of the mighty dollar. If indeed it is losing some of its global influence and starts to falter, the gold price (in dollars) will rise. Of course other extraneous geopolitical factors could also affect the gold price positively. Overall we think the price will stay around the $1,200 mark for the moment but will start to rise by mid-month and perhaps put on $100 or more before the year end. Gold investors think positive!
06 Oct 2018