LAWRIE WILLIAMS: Gold starts higher after US Holiday. Silver disappointing. Gloomy on pgms.
The gold price in Asia and Europe trended higher this morning, following the Martin Luther King Day holiday in the US yesterday which meant there was no report from SPDR Gold Shares (GLD) of purchases into, or sales out of the world’s largest gold ETF. GLD will be watched anxiously by gold commentators given that Friday saw the first inflow into the ETF since November 9th – the day after it was confirmed Donald Trump would be the incoming US President. Since then we have seen a big Trump bounce in equities, the US Fed beginning to raise interest rates, a sharp uptick in the dollar index and a corresponding fall in the gold price.
But this week sees Trump’s inauguration as President (on Friday) despite unprecedented attacks on his probity in terms of salacious allegations accusations of about his private life and of Russian hacking aiding his Presidential election campaign, all denied vigorously. So the reality of someone, seen even by his supporters as volatile and something of a loose cannon politically, acceding to what is almost certainly the most powerful political position on the planet is, at last, making investors nervous. And when investors are nervous they tend to turn to gold as the safe haven option.
Now can gold hold on to its recent price boost. There is evidence already today in the futures markets that there’s a fair amount of activity determined to negate any significant price increase, but we think that continuing uncertainties about Trump’s penchant for making policy statements on the hoof on twitter and about whether he really might succeed in boosting the US economy as he has stated. What will be his real position on some of the nation’s foreign relationships – particularly with China and Latin America - and will he be thwarted by the neocons in Congress and the Republican Party in attempts to devise some kind of rapprochement with President Putin and Russia.
While gold has been rising, silver investors will be disappointed in the performance so far of their preferred precious metal. The Gold:Silver ratio (GSR), for the moment seems pretty firmly set at above 71, but we suspect any continued gold price strength will indeed see silver outperform with the GSR coming in at below 70. If gold remains stronger through the year, as a number of bank analysts are now suggesting, then it is not inconceivable that the GSR could come down to 65 or below, making silver yet again the precious metal of choice.
One is not so confident though about the future of platinum group metals. While internal combustion engine powered motor car sales are doing well at the moment the war against diesel engines which is likely to see older models banned in some major cities within the next decade, will likely adversely affect the platinum catalyst market, while electric car technology seems to be advancing faster than anticipated with the prospect of making big inroads into the internal combustion engine market more rapidly than previously anticipated and a corresponding reduction in demand for platinum and palladium alike.