LAWRIE WILLIAMS: Gold to $1250? Can it go on up?

Gold and silver prices seem to have gained a new lease of life following the G20 meeting in Buenos Aires and President Trump’s dinner meeting with President Xi where a temporary tariff truce appears to have been agreed.  But neither side actually seems to have given way on anything which could be considered significant. True further talking time appears to be available but positions have not changed, and, although equities markets took the initial statements from the two sides positively, on further consideration they look to be coming back down again sharply today.  Meanwhile the U.S. dollar has lost some of its recent strength which has, perhaps, been at least part way responsible for some of the rise in precious metals prices.

The gold price has thus been knocking up against the $1,240 level, although has not yet appeared to have broken through this decisively - but give it time. It’s been close several times today already but $1,240 has proved to be something of a barrier - so far.  Gold futures have hit the mid $1,240s and above and unless the paper gold markets can take the price back down again - and recent moves by the U.S. Department of Justice to sanction bankers who have recently admitted to manipulating some precious metals markets - may be causing prospective market manipulators/spoofers to hold back on their activities.

However, it should also be remembered that in recent years December has not been a good month for the gold price, but the turn of the year then seems to have given precious metals a new lease of life.  

The U.S. Fed seems almost certain to raise interest rates by 25 basis points when the FOMC meets in two weeks’ time, although recent indications in FOMC minutes and a speech by Fed Chair Jerome Powell suggest that it is no longer a foregone conclusion that there will any longer be four, or even three, rate rises in 2019.  The post-FOMC meeting statements this month will be perused closely for any guidance nuances and a confirmation of a more dovish approach ahead could indeed see the gold price surge through $1,250 again and, perhaps, even approach $1,300 before the year-end or shortly thereafter,although there is little time between the FOMC meeting and the holiday season which encompasses Christmas and the New Year for much pricing activity to occur. There is though a chance that we may see a gold price surge pre-FOMC if the dollar index continues to decline - although it has seen something of a pick-up today.

At the beginning of 2018 we were predicting a $1,400 plus gold price this year, but this target looks like being missed comfortably.  Things were going swimmingly until April when precious metals prices started to come back down, while equities moved up and up. But recently equities have turned nervous with some big daily collapses.  These have often been followed by recoveries, but overall equities have weakened in recent weeks, while gold has been strengthening - it’s around $70 up from its interim low of mid-August (and that’s in U.S. Dollars - in many other currencies it is doing considerably better).

Overall gold is still a few percentage points down year to date in U.S. dollars and U.S. equities are marginally higher (as represented by the Dow), but the gap is closing and by the year end, if present trends continue, the relative positions could even reverse.  Indeed in late November U.S. equities were back to the start-year level before seeing a kick back up, but they do appear to be coming back down again.

That other asset, which many at one time accused of stealing gold’s investment thunder, bitcoin has been suffering of late and as I write BTC has dropped below $4,000 again - down from just short of $20,000 late last year.  I commented that BTC was in a bubble when it went up through $10,000 but obviously I was early inm my call!  But while the bitcoin big beast, BTC, is down around 80% some of the smaller bitcoin players - like Ethereum (ETH) - are down 90% from their highs.  As we have stated here before we are not at all positive on bitcoin seeing it as a purely speculative investment with no real substance behind it and would not be surprised to see it fall much further yet.

On the precious metals front, gold has been having a good run as noted above, but palladium has been the star and if its momentum is maintained its price could supersede that of gold within the next few days.  It’s supply/demand fundamentals are strongest of all the precious metals - but primarily as an in-demand industrial metal.

Silver, which tends to do well in a rising gold market, outperforming its yellow sibling, may also be coming good, but not before time many would say.  The Gold:Silver ratio (GSR) has at last dropped below 85 again - if the gold price continues to pick up there’s a good chance that silver will show even stronger growth with the GSR heading back towards 70 or lower.

Overall precious metals do look as though they could see an end-year positive run and probably a good start to 2019.  If equities keep seeing sharp falls like they are today, then gold may well come back into its own as a safe haven investment and start rebuilding its image as such with the investing institutions which have mostly been out of the gold market for some time - seeing richer pickings elsewhere.  If they do restart gold buying this could give all precious metals a significant boost given that where gold goes the others tend to follow.

 

04 Dec 2018

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