LAWRIE WILLIAMS: Gold price faces some headwinds but prospects remains bullish

In what might seem to have been a bit of a coup for the brigade seeking to keep precious metals prices subdued, gold ended the U.S. holiday week a little below $1,400 and silver an even more disappointing sub $15 with an around 30 cent drop on the day, bringing the Gold:Silver Ratio comfortably back over 93.  However, despite all this we still feel the overall trend for both metals remains bullish and we anticipate some more positive rises in the weeks ahead once all the latest data is analysed and digested,

The apparent trigger for the falls was the U.S. Labor Department’s release of the latest nonfarm payrolls report which suggested that some 244,000 jobs were added last month – well above expectations.  This led to the conclusion that the higher-than-expected payroll figures meant that the chances of the U.S. Fed bowing to Presidential pressure to reduce interest rates by 50 basis points at the end-month’s FOMC meeting were now only 4.9% as opposed to around 30% previously.  That rates will be reduced by 25 basis points then is put at 95.1% and no change at 0%, although this latter does seem to be an anomaly because, as we have stated before, the Fed could go for a zero reduction this month if only to re-iterate its independence of the Administration.  This would, of course, stimulate the ire of the somewhat mercurial U.S. President who has just nominated Judy Shelton as a new FOMC member.  Shelton is said to be in favour of some kind of gold standard and supporter of interest rate cuts and would likely be an outspoken member of the FOMC should her nomination be approved.

Job creation statistics tend to have only a short term effect on the gold price – perhaps of more concern should be some slightly disappointing recent PMI figures - but U.S. Markets tend to move up and down on the latest data points regardless.  We anticipate some upwards movement in both gold and silver – the latter in particular as its looking a little oversold – when the markets get back to near-normal next week.  But, as we have pointed out before, the aftermath of major U.S. holidays can see some dramatic changes in market direction, up or down, so we will tend to reserve judgement until we have a clearer idea of where the markets appear to be headed in the weeks ahead.  Thinner trading over the holiday season can see increased volatility as the futures markets, which seem to be the principal spot price drivers, can be moved more easily by big cash injections.

As a guide to U.S. precious metals markets it will be well worth keeping a close eye on GLD and SLV – the big gold and silver ETFs.  Both have been seeing some big inflows – the latter in particular – which could suggest some major positive changes in investment sentiment from the big money.  Some particularly ‘big beasts’ in the financial hierarchy have been singing gold’s praises of late and these are people with considerable financial acumen and who generate strong followings.  They are looking for higher prices, perhaps you should be too!

07 Jul 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