LAWRIE WILLIAMS: Gold sees some recovery at end of down-and up-week
Gold was sold down sharply on Monday, a path also seen by silver which followed an almost identical pattern. Both metals picked up fairly sharply by Thursday at which point they were both sold down heavily again into Friday morning and were then buoyed up by later trade in the day with gold closing the week at $1,727 and silver at a fraction under $26. Positive on the week in each case, but probably still well below the expectations of the investors in each metal. In short precious metals appear to be out of investment favour in the most visible of global markets. U.S. equities – or at least the Dow – seemed to strengthen, although the S&P and NASDAQ were somewhat mixed while bitcoin soared to new heights breaching $60,000 for the first time.
Price movements in the markets seemed to be primarily influenced by two main factors – bond rates and government and central bank stimulus programmes. Although the dollar index traded weaker at times this factor was largely ignored, despite the fact that a weaker U.S. dollar should benefit the gold price. Precious metals prices are very much being driven by U.S. markets and largely irrespective of developments elsewhere in the world despite the U.S. probably only accounting for around a tenth or less of global gold consumption. This figure excludes gold ETFs where U.S. investors may be the dominant purchasers, but the actual ETF gold bullion holdings are mostly stored in vaults in the UK. Actual U.S physical gold consumption levels are probably less than 20% of Chinese consumption for example.
Upward movement in bond rates has tended to be negative for gold which appears to hold a close relationship with the inverse of the 10 year Treasury Inflation Protected Securities (TIPS) yield according to ongoing research by Canadian-based Murenbeeld & Co. – one of the most rational, and consistently accurate of the gold-focused consultancies out there. Their regularly-updated gold price prediction model looks at three scenarios – a bearish one, a most likely one and a bullish one, to each of which they give a probability rating,’ This year’s forecast though had been looking for some good positivity, suggesting a year-end most likely price in the high $1,900s, but so far gold has been significantly underperforming the Murenbeeld forecasts and has been trending far more closely to the least favoured bearish prediction scenario. While there is plenty of time for gold’s performance to recover to nearer the most predicted level, it seems to be hugely out of investment favour at the moment and we would not be too surprised to see the Murenbeeld forecasts to be adjusted downwards accordingly within the next month or so.
While precious metals do seem to be distinctly out of favour as investments at the moment, some parameters look as though they should be in their favour – but the same positive attributes could also be said to favour the seemingly more popular equities and bitcoin. We do see both these in a rather less favourable light though. Equities to date do not seem to have taken into account the big hit taken by nations’ basic economies, but prices appear to be almost entirely focused on the relatively small, but highly promoted, sector which may have benefited from pandemic control measures.
Meanwhile bitcoin, in our view, has to be vulnerable to government attempts to tax it and control it – and also to ‘hacker attack’. You can be sure that there are myriads of computer hackers out there seeking to find ways to part bitcoin investors from their holdings, as with any other digitally-held assets. So far they seem to have had little success in so doing but highly publicised successes in the military, governmental and banking sectors suggest it only a matter of time before some bitcoin wallets are emptied illegally. Any subsequent publicity could see bitcoin prices drop like a stone. To this writer bitcoin is just some massive Ponzi scheme which some day will collapse to near zero – its intrinsic value. Obviously there are some big names out there who would disagree with my analysis and maybe bitcoin will go on rising ad infinitum, but it sure looks to be in bubble territory – far more so even than at its last big collapse back in 2018.
Precious metals started the current week – at least in Europe – pretty much unchanged or perhaps even a little stronger. There is a new U.S. Federal Reserve Open Market Committee (FOMC) meeting this week, the outcome of which, and subsequent statements, will be closely examined for any hints of a change in policy which might give a guide to the state of the U.S. economy. However it is unlikely to foreshadow any changes in current Fed policy, which should be neutral as far as the gold price is concerned, but on past patterns we are likely to see some sharp gold price swings both before and after.