LAWRIE WILLIAMS: Gold keeps on bouncing back to $1,500

There seem to have been multiple attempts to drive the gold price down, but so far the yellow metal’s price has been quick to bounce back and regain the $1,500 level, or thereabouts, which has to be encouraging for the gold bulls.  Seemingly the market seizes on any news that may not actually be gold-positive to see the price marked down sharply, but these, perhaps engineered, declines tend to be overdone with the precious metal then making a rapid recovery.

Yesterday and today was another case in point.  News came out that President Trump was to meet at the White House with China’s trade negotiations leader, the country’s vice premier Liu He, which created speculation that the ongoing trade war between the world’s two biggest economies might be mitigated, although a complete end to the dispute still seems far away.  China and the U.S. both remain intransigent on many key issues and although the dispute is damaging to both nations, neither seems prepared to capitulate on any of these.

However, some optimistic noises from both sides saw U.S. equities rise and gold fall nearly $20, before the latter started to recover in later trading.  This morning gold regained the $1,500 level yet again, although seemed reluctant to move much higher – presumably awaiting any statement following the high level meetings at the White House today.  We suspect some kind of conciliatory statement will materialise from the meeting, but doubt that much will actually change with the Chinese delegation due to head home after a fairly brief two days of negotiations.

We do anticipate increased volatility in gold and silver prices up until a true breakout above the key $1,550 gold level is achieved with prices rising and falling on each snippet of U.S. data seen as being positive or negative by the markets.  Once the $1,550 level is breached there may well be little to stop gold achieving $1,600 or higher.  Some kind of real settlement of the U.S.-China trade dispute would indeed be equity market positive and thereby negative for safe haven counters like gold, although an equities collapse, which we do see as on the cards at sometime in the relatively near future could drive investment into seemingly safer assets, although these too could be brought down initially as investors – particularly those who may have been buying on margin – struggle for liquidity.  We saw this happen in the 2008 market crash, but precious metals were far quicker to recover than equities gold (recovered its losses in a mere couple of months) and went on to achieve new highs over the following 3-4 years.  Thus we see an equities crash driving down precious metals too as creating a huge buying opportunity for the latter.

Meanwhile there are plenty of other factors which look positive for gold and silver in the short to medium term.  According to research published by the World Gold Council, gold ETF inflows have now reached record highs, while published central bank gold increases remain at an elevated level.  U.S. domestic politics is mired in revelations leading the President Trump impeachment process to move on – although he is unlikely to be removed from office given the Republican majority in the Senate.  But the Democrat-led House of Representatives will likely move on with the process with each successive revelation (and there will be more anti-Trump findings exposed) creating additional uncertainty – gold and silver positive.  Global geopolitics is firing up to increase uncertainties – particularly as a volatile U.S. President perhaps makes moves to try and move media emphasis away from his domestic difficulties with the 2020 Presidential election looming.  These are dangerous times and we anticipate wealth insurance assets like gold to continue to come to the fore as long as an equity market collapse doesn’t bring everything crashing down, albeit temporarily.

For the time being, though, we see gold and silver as the best investment asset options for safety’s sake as long as an equities crash is warded off.  PGMs, though, are particularly vulnerable to a global recession (which may well be commencing) being very much industrial metals with only a comparatively limited precious metals investment function.  We are already seeing a massive downturn in global auto sales (both for personal vehicles and trucks) and these provide the principal markets for PGMs as autocatalysts for exhaust emissions control, although the fall-off is somewhat mitigated with tighter emissions control legislation leading to higher PGM loadings being required.

11 Oct 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).

e: lawrie.williams@sharpspixley.com