LAWRIE WILLIAMS: Gold tops $1,950 on way back to $2,000?
In its New Year resurgence, gold topped $1,950 in early U.S. trade on Tuesday, before being brought back down on better than anticipated ISM Manufacturing Index figures. But this reversal was relatively shortlived as upwards pressure re-developed amidst a degree of nervousness in global equities markets after the previous day’s quite heavy falls, and continuing high levels of reported new virus infections and deaths in the U.S. in particular. Sentiment on these was probably also pressured by news out of the UK of rising infections, blamed on a new more infectious mutation of the coronavirus resulting in revived national lockdowns. Based on the virus spread statistics of early 2020 it was expected that this new more infectious strain was likely to make itself felt in the U.S. too with potentially catastrophic results on the healthcare system, particularly given the more relaxed attitude towards anti-viral precautions in much of the U.S. heartland.
On Wednesday, gold was brought down a little in Asian trade, but rapidly regained the $1,950 plus level with silver remaining comfortably above $27, once Europe came on line before slipping back a little with a bit of a battle commencing at the mid-$1,940 level for gold. Whether the higher levels can be restored and sustained through the day remains to be seen, but judging by Tuesday’s price performance there is a good chance that they can and move on to higher levels still putting the prospect of the yellow metal regaining the $2,000 level in the next few days relatively high. We had not anticipated such a move so soon in the year, although we had remained positive on gold overall, so we may have to upgrade our forecasts for mid and end year precious metals prices made just before Christmas (see: A $2,200 plus gold price this time next year? Christmas cheer for gold and silver.) accordingly. However our basic positive outlook for precious metals in 2021 remains unchanged. It should be recognised that the start of the year tends to be gold price supportive, so this is no exception.
An unknown as I write is the outcome of the runoff elections for the two Georgia Senate seats which could see the Democrats assume technical control of the Senate. This would leave Republicans and Democrats (supported by independents) tied with any necessary casting vote in the hands of Democrat vice-president elect Kamala Harris. Should the Democrats thus gain control of the Senate – and one of the two seats has already been called for the Democrat candidate – the likelihood of Biden-supported higher economic stimulus levels to mitigate the adverse effects of the coronavirus pandemic being passed would be more likely. Such a measure would probably be positive for both equities and precious metals and could be all the precious metals markets need for gold to regain the $2,000 level in the short term.
The possibility (or perhaps even the likelihood) of the second Georgia Senate seat falling to the Democratic candidate helped give the gold price its initial slight boost this morning in Europe. The direction the gold price takes could yet depend on the way the Georgia runoffs are seen as going during the day. But the likelihood that the coronavirus pandemic has not yet peaked in the U.S. could yet come to the fore anyway and impact equities markets negatively while at the same time drive investors into the assumed safe havens of gold and silver.
06 Jan 2021