LAWRIE WILLIAMS: Gold tops $1,400, falls back but recovering

Gold passed another milestone overnight, comfortably breaching the US$1,400 level, but did not manage to sustain this heady level which analysts earlier had only predicted to be achieved later in the year.  All the factors we mentioned in yesterday’s column (See: Can gold’s breakout be sustained?) remained in play along with overnight reports that President Trump had approved military strikes against Iran before changing his mind and aborting any attack – for the time being at least.  This seemed to allay European fears and the gold price was marked back down in early trading today and had fallen to the low $1,380s before recovering to near $1,400 again at the time of writing.

The question facing gold analysts and investors now is whether the brief foray above $1,400 was a flash in the pan, or whether the psychological level will be attacked again, perhaps later today or in the near future.  We shall see and the rest of today’s trading will be followed with particular interest as will the weekend close.  We suspect there is a chance that the gold price may not be allowed to close the week above $1,400, but next week’s trading could well see another spurt, particularly if the Iranian flashpoint sees some kind of military action.  Oil prices have been seeing a small recovery on the likelihood of further disruption in the Persian Gulf and they too could take off in the onset of any U.S. military strikes against Iran.

As my colleague, Ross Norman, has consistently been pointing out though, the U.S. dollar, in which gold is mostly quoted, is only the primary currency for a fairly small proportion of the world’s potential gold-buying universe (See: The Gold Train Is Leaving The Station).  Ross reckons that the gold price is at, or near, an all-time high in around 72 global currencies, although still well below the $1,900 plus briefly achieved in U.S. dollars nearly seven years ago now.  Is this U.S. dollar level in danger of being replicated?  Perhaps not in the short term but if geopolitical and geo-economic events continue as they are now then that all-time dollar high level is in danger of being revisited within the next couple of years at the least. 

Certainly the sentiment in favour of gold from some very high profile hedge fund heads (Ray Dalio and Jeffrey Gundlach to name but two) is very apparent, and where they go others will follow.  And it is big institutional money which will ultimately drive gold to ever-higher levels.  It has been the lack of this kind of monetary following which has perhaps kept the gold price down with gold out of favour until now in institutional holdings, but all this may be changing and could have a dramatic effect on prices going forwards.

In addition to the geopolitical and geo-economic factors currently boosting the gold price, President Trump has also made it clear that he favours the Fed cutting interest rates at the next available opportunity (late July sees the next FOMC meeting) perhaps by as much as 50 basis points – a level of cut we see as unlikely.  Whether the Fed will bow to Presidential pressure is perhaps unlikely – indeed there is a chance that it may hold off cutting rates just to demonstrate its independence.  But the likely trend of interest rates is lower, at least under present economic indicators which suggests the dollar may continue to weaken which is usually gold positive.

As I write, U,S. Markets will open in a couple of hours and it remains to be seen how they will view the current situation.  It will be interesting to see what happens in the runup to the week’s close. It will likely set the scene for what lies ahead for gold and the other precious metals.

21 Jun 2019

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