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LAWRIE WILLIAMS: Gold still unable to settle above $1,800

Just over a week or so ago we were suggesting here that a gold price of $1,800 might provide downside resistance, but we spoke too soon – yet again.  Some concerted selling immediately before and after the U.S. Labor Day holiday took the gold price down well below this level from where it seems to have had trouble regaining its plus $1,800 place.  Indeed $1,800 seems to have now been providing pretty firm upside resistance.  Each time the gold price has reached this level it has been brought back down rapidly, which smacks of $1,800 having been built in, for now at least, into a computer trading sell point.  Others attribute the apparent price capping at this level to perhaps more sinister motives.

Friday was yet another case in point.  The gold price broke upwards through $1,800 in early European trade and even touched $1,805, but was quickly brought down again into the $1,790s.  It ended the day, and the week, at around the $1,787 level.  Plus ça change.

But, much as $1,800 was breached first to the upside and then to the downside, we suspect it will not take long for it to overcome on the upside again with gold moving higher – perhaps to approach $1,900 – the next true psychological resistance height, although the next real upwards resistance point is put at around the $1,830 mark.  It has started the current week just a little above Friday’s closing level, but not significantly so.  Who knows what the rest of the day and the week will bring!

There do seem to be quite a few positive factors for gold occurring at present – not least any longer term fallout from the perhaps over-hasty U.S. military withdrawal from Afghanistan and the ongoing continuation of negative real interest rates.  But in recent days U.S. markets have shrugged these factors off and proved to be negative for the gold price so we wouldn’t perhaps expect any prolonged upwards gold move until well into the current week at least. 

Any such timing may well depend on movement in the U.S. dollar index.  If this strengthens then that could keep precious metals prices depressed, but if it weakens then the reverse should come about.  The dollar may well be seeing some benefit from the Afghan withdrawal, with the U.S. no longer having to expend huge dollar volumes to support its troops there.

The apparent slowdown of any realistic recovery from the COVID-19 coronavirus pandemic in the world’s leading economies also seems to be adversely affecting the more industrial related precious metals too – the pgms and silver.  Palladium seems to have been particularly badly affected with a massive price drop a couple of days ago and an apparent slowdown in new automobile sales will have been a particularly relevant factor here. 

Exhaust emission control systems are by far the major consumption element in current palladium demand, and the particularly sharp slowdown in auto sales in China, the world’s current largest market for new cars will have come as a blow to this particular market. 

The continuing growth in electric powered light vehicles will also be putting an ever-growing dent in palladium exhaust emission control system demand over time – but perhaps not yet.  Additionally, news out of South Korea that auto giant, Hyundai, is planning to offer fuel cell versions for all its commercial vehicles by 2028 is yet another indicator of a future trend for reductions in palladium demand – but could provide something of a boost for platinum which is utilized in fuel cell technology.

Silver too is losing its monetary premium becoming ever more reliant on industrial markets for its principal demand elements.  However it still retains a correlation with gold – rather more so than the pgms – in the minds of investors so will almost certainly continue to move up and down in price with the fortunes of the gold market, but perhaps not in such an exaggerated manner as it used to in the past.

There are indications that some degree of tapering in bond purchases by both the U.S. Fed and the European Central Bank (ECB), which is seen as negative for the gold price, could commence this year but there has to remain a degree of uncertainty on timing related to the spread of Delta Variant COVID-19 related infections and deaths.  Any tapering delays – even into early next year – would possibly give the gold price another leg up, while any confirmation of proceeding with it this year may well have already been written into the gold price equation.

Regarding rises in interest rates to try and combat inflationary trends in economies these will almost certainly be too little too late to have a negative gold price impact.  Real interest rates will thus likely remain distinctly negative for some time to come – a factor which should see strength in the gold price going forward remaining.  Gold may not hit $2,000 this year, but such a level cannot be too far off.

13 Sep 2021 | Categories: Gold, Silver, Dollar, Platinum, Palladium, US

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