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LAWRIE WILLIAMS: Gold price still in doldrums on dubious news interpretations

At the end of a hugely volatile week for precious metals, the only positive thing we can say about the gold price is that it ended the week at a very similar level to the previous weekly close in the U.S.  During the period it moved between a multi-month low and brief signs of a potential recovery.  The latter were soon dashed by some what we consider as dubious interpretations of what were taken by the media as significant news items – but in truth were perhaps nothing of the kind.

Underlying everything in the U.S. - the driving force behind almost all global markets – was the virtually ignored spectre of a born-again rise in coronavirus infection rates.  Friday saw U.S. coronavirus new figures rise from a level which appeared to have come down to around 80,000 new daily cases returning up to around 150,000 new recorded daily infections and a mortality toll rapidly rising towards 1,500 new deaths a day again. It should be recalled that in mid 2021 new coronavirus cases of record had fallen to around 13,000 daily cases. 

This new infection rate rise appears to have been driven so far by growth from the more transmissible Delta coronavirus mutation, but there are already cases occurring of the new Omicron strain right across the whole USA, and early indications are that this mutation may be even more transmissible, although possibly not as deadly.  What this new surge in infections will do to the prospects of U.S. economic recovery has to remain exceedingly uncertain.

Globally the figures are perhaps even more worrying.  In Europe the infection rate surges are already seeing some increasingly stringent government regulation coming into force in some countries.  Both Germany and France seem to have surpassed the UK in daily virus infections despite testing rates in the two former nations being far lower than in the latter.  In Germany, which had earlier seemed to be combating the virus spread well, testing rates are less than a quarter of those in the UK, and in France less than half, yet both have seen massive recorded infection rate rises in the past week. 

The number of active virus cases found will be directly proportional to the testing rate so German and French total infection figures are likely to be proportionally even much higher than so far announced.  The UK has conducted the highest number of virus tests of any European nation, so per capita infection rates will have, in reality, been far higher in most other major European countries, indeed globally, when taking total population levels into account, given recorded new cases tend to be directly proportional to numbers of tests conducted.

The other notable statistical development in the past week has been the wide swing in the bitcoin price, which fell back enormously on Friday to, at one time, around $20,000 below its recent peak, before making a partial recovery.  The significance of this for gold is that this huge volatility almost certainly makes bitcoin a rather less attractive wealth protection asset class, which could bring investors back to gold as their safer haven.

With the new virus infection wave building in the U.S. its effects on the nation’s economic growth prospects and the continuing falls in the overall unemployment level could soon be called into question.  These will play heavily on the deliberations at this month’s FOMC meeting and could yet delay tapering and interest rate raising forecasts despite possible indications to the contrary in Fed chair Jerome Powell’s recent testimony to the U.S. Congress.  In contrast the European Central Bank President, Christine Lagarde, is still seeing current inflation levels as a ‘bump’ and foresees no short term change in the Bank’s low interest rate policy. 

 The latest U.S. job creation figures for November were seen as hugely disappointing in numbers, but the overall unemployment rate, posted as 4.2%, did seem to be in line with the Fed’s initial tapering proposals.  Whether this will remain the case amidst rising U.S. coronavirus infection rates remains to be seen.

We still feel that gold price prospects remain positive overall as we near 2022, However, we could well see them take another knock when the FOMC meets in just over a week’s time if any speeding up of the proposed tapering rate looks to be  forthcoming. 

Meanwhile it is probably best to ignore the recent predictions of $10,000 gold and $500 silver from analyst Leigh Goehring, although he was looking at a 10-year timescale and a continuing rise in inflation.  He felt that increasing inflation levels would force the Fed to raise interest rates, but the ensuing equity market havoc this might cause would lead to an almost immediate reversal of this policy,  This, in turn, could kick start an enormous bull market in both gold and silver.  We have always been wary about forecasts of such massive precious metals price rises, even over such a long timescale, and remain hugely sceptical.  Such high precious metals price predictions have not been infrequent in the past from the more bullish commentators, but have yet to be even close to coming about.

05 Dec 2021 | Categories: Gold, US, FOMC, Bitcoin, UK

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