LAWRIE WILLIAMS: Gold see-saw: Up in Europe, down in USA

As we at least half-predicted yesterday, the gold price caught an upwards wave in Europe on Mario Draghi’s loosening moves at the ECB, but was not allowed to stay above the $1,500 level it regained there (indeed it rose to above $1,520 at one stage) and was taken down to $1,498 by the market close in the U.S.  The fall seems to have been due to renewed optimism on some kind of trade talks agreement with China being on the cards after news from, later denied by, the Trump Administration that the U.S. might go easier on tariffs on Chinese imports.

With the resumption of trade talks between the U.S. and China not due until next month, and any seriously conciliatory outcome dubious anyway in our view, we suspect that gold will see another boost today.  Any precious metals price movements on trade concessions will thus be highly speculative.  However the weekend is coming and those that would seek to control the gold price have been reluctant in the past to see the yellow metal end the week above such a key psychological level as $1,500 and we may thus see a repeat of yesterday’s price movements today, with early strength in European trading perhaps being taken back in U.S. trade later in the day.  Déjà vuall over again in the words of Yogi Berra.

Whether this happens or not, the gold price does seem to be under pressure to rise and eventually we do see this impetus driving prices upwards.  Much may depend in the short term, though, on the outcome of next week’s FOMC meeting, and the interpretation of the various statements from Jerome Powell et al which will follow it.  Will the Fed lower interest rates again and, if so, are there further likely reductions ahead this year?  U.S. financial data is conflicting, but the fragility of the global economy may well see the Fed taking cautious measures, including further rate reductions, to try and insulate the U.S. from a global malaise.

President Trump is still calling for the Fed to reduce interest rates further referring to Fed voting members as ‘boneheads’.  In his view they should cut rates to zero – or even take them negative, but so far the ‘boneheads’ at the Fed have resisted following President Trump’s suggestions in full, although they must be under continuing pressure to do so, particularly now the ECB has further lowered its interest rates and is to reintroduce a form of Quantitative Easing.  President Trump is suggesting the Fed follow the ECB’s example in order for the U.S. to remain competitive in global markets.  This is truly a race to the bottom as far as interest rates are concerned – where will it all end?  It’s slightly ironic in that the whole global economic malaise could be put down to having been initiated by the U.S.-generated trade war!

One thing that results is that any interest rate reductions will be seen as positive for the gold price.  Negative interest rates (and even the current positive U.S. rates are effectively negative given real inflation is at a higher level) make gold an even more attractive investment.  Add to that political and financial disarray in Europe with Brexit, a possible German recession and the precarious Italian political situation, continuing unrest in the Middle East, the Indo/Pakistani face-off in Kashmir, the ever-continuing differences between the U.S. and China, and an erratic U.S. President prone to shoot-from-the-hip controversial policy decisions to name but a few uncertainties out there.  Many commentators, including the writer, foresee a major U.S. equities crash occurring sooner rather than later. 

Thus global finance and geopolitics is currently crammed with uncertainties, any one of which could escalate rapidly.  And all this makes gold an attractive wealth insurance protector.  Silver tends to follow gold despite its big industrial demand element nowadays.  The future price progress for pgms is perhaps a little more uncertain given they are, in reality, industrial metals which should be reliant on global economic growth for advances, although platinum could be more likely to follow gold upwards at least a little in any general price rise.  Palladium is possibly too dependent on the global automobile sector, which could be hard hit by a global recession, to carry the price advance confidence we see for the other precious metals.  But overall we continue to see the likelihood of a positive precious metals sector as likely in the short to medium term at least and probably well into the future.

13 Sep 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