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LAWRIE WILLIAMS: Gold price: Syrian missile strike has little impact.

World War 3 is not with us – yet.  The American/British/French response to the alleged chemical weapons attack by the Assad regime in Syria in Douma appears to have been sufficiently well targeted, and telegraphed, to avoid a direct military confrontation with the Russians in particular so that the financial world has breathed a sigh of relief and business appears to be back to normal – whatever normal is nowadays.  Response in the equities markets has been mixed – in Asia the Nikkei rose while the Hang Seng dropped, and markets in Europe are all down, although not that significantly. U.S. equities opened higher though.  The gold price has ebbed and flowed and, at the time of writing had settled back to breaking through the $1,350 level which is pretty well where it had been during the previous week.

The U.S. dollar is showing weaker, which will have been a contributor to the higher gold price in dollars, with the dollar index (DXY) down at a little over 89.4 – at close to its lowest point since President Trump took office.  As we have noted here before, part of ‘making America great again’ seems to involve a degradation of the dollar against other currencies.  This may be positive for gold in U.S. dollar terms, but not necessarily in gold producer currencies which may be reflected adversely in many gold mining company earnings patterns.  However it should be a boon to those U.S. manufacturers which rely on exports for an important part of their business.

President Trump has much to occupy his mind at the moment, not least in his clashes with the FBI which may be tempering his anti-Syrian action and his anti-Russian and anti-Chinese rhetoric.

The U.S. Fed seems set on continuing to raise interest rates but will be keeping a close eye on equity prices as Jerome Powell won’t want his tenure as Fed chair to be seen as the leadership which led to a collapse in the Dow.  To an extent he has inherited a poisoned chalice in this respect with the Dow possibly at unsustainable levels anyway and a necessity to raise interest rates to give the Fed more options should there be signs of a forthcoming recession – positions that are not necessarily tenable with each other.

Even as the relatively controlled Syrian missile strikes seem to have had little impact on the gold price one way or the other, we remain in a dangerous situation geopolitically.  There are numerous flashpoints which could flare up at any minute but on recent evidence they may not affect the gold price by more than a few points.  But fundamentals for gold are still looking positive – and perhaps even more so for silver which has been languishing so far this year.

Gold, though needs to take another tilt at $1,365 – a level it touched last week – if it is to be seen to break out to higher levels.  It still looks to be on track towards $1,450 this year, but much could yet happen to help it on its way, or keep it back.  There’s a long way to go to the year end but as long as Asian demand, particularly that in China, holds up then the gold price should continue to strengthen with new mined production at best pretty well flat.

16 Apr 2018 | Categories: Gold

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