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LAWRIE WILLIAMS: Gold fails to hang on to $1,800 level but still trending positive.

Some time back, we had predicted that the gold price could reach the $1,800 level by the end of November.  We were wrong by a day, but not bad timing overall, but so far it is struggling to maintain that level after only a couple of days into December.  It dropped down back down below $1,800 in Europe on the Friday morning and then fell almost another $20 when U.S. markets opened but has been clawing its way back towards $1,800 since, but was only able to end the week in the high $1,790s.  Equities lost most of the ground they had put on too, although the Dow still managed to close on an upwards note and cryptocurrencies also came back a little as well.   

We had warned about equity and crypto vulnerability in the face of potential U.S. economic weakness going forward, which was also highlighted by news of a big rise in job layoffs as the Fed’s tightening measures started beginning to bite.  In our minds that is only the tip of the iceberg and these figures will only get worse heading into 2023 despite any slowing down of the Fed’s interest rate raising programme.  Equity markets have to remain vulnerable in particular as this realisation truly begins to sink in.  Cryptos may be a different story, though, as those markets, to our mind, are totally built on hype and with a seemingly gullible investment public out there, anything could happen.  But they remain a gamble to hype winning out over commonsense and in the long run we suspect the latter will prove victorious.  We are a great believer that if something looks too good to be true investment-wise, it usually is!  That applies equally to the gold at $10,000 promoters too.

However the news of the rise in job layoffs was somewhat countered by a positive jobs report for November which put the key non-farm payrolls number up by a higher than expected 263,000.  Average hourly earnings showed a rise of 0.55% from October and up 5.09%, year-on-year. Those figures were seen as particularly strong by the marketplace and as possibly adding to inflationary pressures which could be taken as a negative for the Fed’s plans to start to slow down its interest rate raising programme.   However we feel that the cut in rate increases to 50 basis points at the December FOMC meeting is still most likely barring some exceedingly adverse data in the December 13th Consumer Price Index (CPI) release from the Bureau of Labor Statistics.

As for gold and silver, we remain confident in their longer term potential.  Gold as a safety-valve investment and store of wealth has stood the test of time for thousands of years.  With many central banks seemingly adding to reserves at record levels, according to the latest data from the World Gold Council as compiled by the Metals Focus specialist consultancy, it does seem to be finding some good high quality support.

Silver has performed rather better than gold in recent days and has even risen a few tens of cents.  It has perhaps the strongest supply/demand fundamentals it has had for some time.  It tends to ride on gold’s coattails anyway, despite it no longer being in reality a monetary metal and its demand patterns look to be strong and growing.  It does have a habit of disappointing the investor though and is perhaps a much more volatile investment asset than gold, but on basics looks as though it should be set to perform better in the months ahead.  Nonetheless we are nervous about recommending it because of its somewhat erratic past performance.  It is much more of a gambler’s investment.

So, our overall conclusion is be wary of equity investment going forwards.  To us economic headwinds look to be inevitable both in the U.S. and worldwide.  As always we are uncomfortable with cryptocurrencies – there seem to be altogether too many dubious characters mixed up in the get-rich-quick elements of these markets.  Caveat emptor.  Gold and the better gold stocks, as always, appear to us to be the safest bet, while silver is the gambler’s best choice for capital appreciation.  Was it ever thus?

03 Dec 2022 | Categories: Gold, Silver, US, FOMC, Bitcoin, inflation

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