LAWRIE WILLIAMS: Gold recovers yet again. Will it stay up?

We have previously commented how resilient the gold price has been in recent weeks.  It keeps on being taken down, but then bounces back again to the $1,500 level.  How long can it be before it breaks out?  Not long now we think.  This ‘groundhog day’ process is sure to come to an end – and the writer thinks sooner rather than later.

For the moment, all eyes will yet again be on the U.S. Federal Reserve and next week’s FOMC meeting to see if any surprises are forthcoming.  The odds still seem to be comfortably on yet another 25 basis point cut in interest rates and observers will be checking the language of the statement which follows to try and ascertain the Fed’s interest rate moves further into the future.  President Trump is still pushing for ever more swingeing cuts to enhance American export competitiveness. 

A further interest rate cut in December is also seen as likely, and possibly further reductions in early 2020.  Any deviation from this projection could be negative for gold, but if indeed this is seen as being what is likely to happen the gold price could well consolidate above $1,500 and quite possibly move on to higher levels before the year end. 

There are a number of other factors at play, of course.  Any significant progress in the U.S./China trade talks could help equities and perhaps dent gold’s safe haven attraction, but then there are any number of global geopolitical flashpoints which could blow up and impact the gold price positively in the meantime.  Re the trade talks we don’t see either side making any significant concessions, although there may be statements suggesting progress is being made which, on closer examination, will probably just be sops thrown to the media to try and give the impression that a deal is imminent and tariffs will be lifted or reduced.  But we suspect this will be illusory. 

President Trump may feel he has China on the back foot, but many of the U.S. demands are unlikely to be met in reality by the Chinese who are probably playing a long game and are prepared to suffer economically in the short to medium term accordingly.  They may well see their economy as rather more resilient to temporary setbacks than the U.S. capitalist system appreciates.  The U.S. may be the world’s richest nation but the rest of the world is playing catch-up and will provide an ever-expanding market for Chinese goods which will ultimately be able to replace any tariff-related downturn in shipments to the USA.

Currently in the U.S. any movement in the Trump impeachment progress will likely impact the gold price, although we can’t see Trump being removed from office even if the House of Representatives votes for impeachment. We doubt that there are enough dissident Republicans in the Senate to achieve the necessary two-thirds majority to force the President out of office.  There may well be a number of Senate Republicans who dislike President Trump, what he stands for and his way of achieving his aims, but the seemingly ever-expanding political divide between U.S. Republicans and Democrats would suggest that partisan lines will hold.  Some of the Democrat presidential candidates seem to be espousing what the Republicans see as ‘Socialism’ (a dirty word in the U.S. context).  But this is a pretty mild form of such relative to that practiced in many other Western democracies as many of the U.S. population will be aware.  However the propaganda machine paints it as the end of American society as it stands, and the country’s declining middle class wealth, such as it is, thus promoting huge uncertainty as to the nation’s future path.  Uncertainty tends to be good for gold!

From the second quarter next year, the ebbs and flows in the fortunes of the likely chosen U.S. Presidential candidates will begin to take centre stage.  The country is hugely divided politically and the U.S. domestic market situation remains the primary mover of the gold price – even though the U.S. probably only accounts for perhaps less than a quarter of global gold demand.

The gold price has been picking up in Europe today and as I write is sitting at around $1,515,  Whether the U.S. markets will keep it at that kind of level remains to be seen with the weekend close approaching – and the U.S. markets seem to have been loath for the gold price to close the week above $1,500 of late – but if the close is in the $1,510s or higher that is probably a bullish signal for the precious metal ahead of next week’s FOMC meeting.  Gold investors can but hope!

25 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