LAWRIE WILLIAMS: Gold rising as Dow and bitcoin tank again

Despite something of a turnaround in terms of dollar strength, the gold price seems to be doing reasonably well as equities and bitcoin may be continuing on their downwards paths.  Indeed we’re now in a situation where gold, despite being down year to date by a few dollars is now actually performing better than equities although on a year to date basis both the Dow and the S&P 500 are slightly up while gold remains about 7% down.  But it won’t take much of a further fall in the equities indices, nor much of a rise in the gold price, to bring performances pretty well level.  The way markets are looking at the moment we wouldn’t be too surprised to see this happen, particularly if the U.S. Fed gets cold feet over the likely December interest rate rise.  A week or so ago a further 25 basis point interest rate rise announcement on December 4th at the FOMC meeting looked a near certainty.  Now the markets are not quite so sure!

And as for Bitcoin, BTC plunged well below the key 5,000 level yesterday and is down over 65% year to date and may still be falling.  Ethereum, which fell below 150 on Tuesday, is down a massive 81% year to date – and it should be remembered that it only peaked in mid-January and is down over 90% from there.  I guess this is a pretty solid answer to whether gold, or bitcoin is the safer investment!  The latter seems way too volatile.

So where are we now?  U.S. equities, which tend to drive indices across the globe, fell heavily on Tuesday and were just about flat yesterday.  European equities, after a minor recovery Wednesday, turned down again this morning so markets afre still extremely nervous.  Should the recent U.S. equity falls turn into a fully fledged rout – gold may just regain its safe haven role and find favour again as an asset class after being in the investment doldrums since around mid-April this year.  That lack of positive sentiment may be a blessing in disguise should the recent fall in equities continue apace.  Back in 2008 – the last time the markets really tanked back in 2008 – gold and the other precious metals all fell back drastically too as funds and other institutional investors needed to sell good assets just to stay afloat.  But this time around many are not invested in gold at all given how out of favour it had become so the selling pressure that occurred 10 years ago may just not be there on this occasion.

There does seem to be some resistance, or price management, in gold’s rise.  It kept on getting turned back at around the $1,225 level yesterday, but has opened stronger in Europe today.  This morning it nudged $1,230 before being turned back again so the price management is still in, but the overall pressure seems to be upwards - if it does break through $1,230 the next stopping point may be $1,250 or higher.  Whether it can get back to $1,230 again this year remains to be seen.

Key is the still-likely Fed interest rate rise early next month.  As yet there is no indication that the Fed is having second thoughts, but if the U.S. equities market continues its sharp downwards path, it could well delay its interest raising programme for fear of being blamed for a significant stock market turndown.  If this should happen then the impact on the gold price could be strongly positive.  So we, and the Fed will likely be waiting on Wall Street performance over the next two weeks for any major indicator of a sharp change in direction for gold.

Even if the Fed sticks to its interest raising pattern, this may initially knock gold back a little in the event, but recent history tells us the yellow metal may see something of a price boost in the runup to Christmas and the New Year.

 

22 Nov 2018

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