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LAWRIE WILLIAMS: Gold taking another tilt at $1,300

Three times in recent months gold has looked to be powering upwards towards the $1,300 psychological barrier and each time it has been found wanting.  Now once again, following what many commentators are referring to as the release of so-described ‘dovish’ Fed minutes from the August FOMC meeting, gold has again hit the high $1,280s (at the time of writing) and seemingly poised for higher levels.  As I commented in my recent article here quoting my version of the Chumbawumba eighties hit, ‘Tubthumping’, “Gold gets knocked down but it gets up again.  You’re never going to keep it down”.  The question is, does it have the momentum to push it up through $1,300 when the big money, utilising its COMEX paper gold futures stranglehold, seems determined to stop it reaching this level, or above.

The progress of the gold price currently seems tied to the U.S. Federal Reserve decision as to whether to carry on raising interest rates or not.  Fed Chair, Janet Yellen, had flagged three, or possibly four, interest rate rises for 2017 and we have had two of these which have taken U.S. interest rates up all of 50 basis points.  But the latest Fed minutes are being interpreted as showing that the Fed is now unlikely to implement even a third rate rise this year.  The U.S. economy is not recovering as fast as the Fed had been predicting (indeed it may not be recovering at all) and inflation has stubbornly refused to rise above the Fed’s target level of 2% (it has actually been falling).  Employment levels do seem to have been meeting targets, but not really with the kinds of jobs that would be coming in with a true economic upturn.  In short the FOMC deliberations suggest that there are serious worries that any further increase in rates would lead to a reversal in the tiny economic upturn that may have been seen already, and also precipitate an equities market crash, which it has been trying to avoid at all costs, as that is such an overt indicator that all is not well with the U.S. economy.

At the moment there again appears to be upward resistance to further price rises at the $1,290 level, but it is early days yet following the release of the FOMC minutes.  We could be seeing the gold price top again at around the $1,290 level – for the fourth time in a row – but the more the gold price knocks at this level, the greater its chances of making a significant breakthrough.

Silver has also made something of a recovery to back over $17 an ounce and the gold:silver ratio has come down to the mid 75s again.  We think the GSR is still at too high a level, but it will take gold to continue its upwards path for silver to rise further and faster. 

Demand for physical gold and silver remains muted in North America at the moment – and may continue so while equities remain strong, but if the much-anticipated equities crash starts to happen – as it is bound to eventually – then gold and silver could both see concerted North American buying, which may well be what it takes to drive the gold price through the $1,300 barrier. 

Asian demand for physical gold remains strong, with the anticipated fall in Indian demand after the pre-GST restocking just not materialising to the extent anticipated.  Indian and Chinese gold imports pretty well account for 90% of the world’s new mined gold supply – which at last appears to have peaked – and if a return to higher demand levels in America starts to be seen this, coupled with the continuing high Asian imports, could be all it needs to drive the gold price onwards and upwards through the $1,300 level.  But an uptick in North American demand is not apparent yet – one probably needs to watch the gold ETFs to see if this is starting to happen.  If the biggest American gold ETF, GLD, restarts its upwards path (it bled 78 tonnes in just over 2 months from mid-June) then that could be the trigger necessary.  In fact GLD added 4.43 tonnes yesterday and 4.14 tonnes a couple of sessions earlier, but this is still too little, and over too short a time period, to represent a trend, but it may yet prove to have been a start!

17 Aug 2017 | Categories: Gold

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