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LAWRIE WILLIAMS: Gold up, up and away? Perhaps not quite yet

Gold took off to, at one time, over $1,260, well above the $1.250 level which had proved over the past few weeks to be the main point of resistance (See: $1250 gold - thou shalt not pass) as soon as U.S. markets opened yesterday.  This was on suggestions that the U.S. Fed would be taking a more ‘dovish’ stance on current and future interest rate rises at the December FOMC meeting.  In the event the bullish euphoria was shortlived as the immediate result from the Fed lifting U.S. interest rates by 25 basis points, as expected, was for gold to drop back around $20 to the low $1,240s yet again despite the Fed taking a more ‘dovish’ view on the number of interest rate rises it expected to make next year.  Perhaps this was not ‘dovish’ enough for the markets and an ensuing statement from Fed chair, Jerome Powell, did not ease the situation.

Equities too had kicked up sharply ahead of the statement, but powered down again around Powell’s statement and although ending above the day’s low points all three major U.S. indexes fell sharply on the day’s trading into the red yet again.  The Dow closed down another 350 points. The S&P 500 was off 39 points and the NASDAQ ended the day down 147 points, while gold started to pick up again in later trading.  Indeed December so far has been a mensis horribilis for U.S. and global equity markets leading to fears that the long predicted market crash is getting under way.  Gold is now beginning to benefit as, with the dollar also falling back, it is again becoming recognised as perhaps the best wealth protecting investment asset out there. It also won’t have gone unnoticed, for example, that around 8 tonnes of gold were deposited in the world’s largest gold ETF, GLD, a couple of days ago bringing the total holding to 771.79 tonnes - the highest level for around four months.

This morning in European markets gold powered back up through the $1,250 level and, at the time of writing, had been approaching its 200 day moving average again, a significant breakthrough of which could lead to more buying pressure as individual investors and funds try to insulate themselves fro the declining equity markets. It was capped at the 200 day MA level and brought down a couple of dollars and has, so far,.been trading almost flat since.

Asian equity markets were down comfortably overnight too and European ones are sharply down as I write too leading to suggestions that the fall in U.S. equities may continue when markets open later today.

Of the other precious metals all were up in line with gold. Palladium trading at or around parity with gold still seems to be the strongest mover among them.

On analysis the statement following the latest FOMC meeting, and Fed Chair Powell’s subsequent comments, were perhaps less ‘dovish’ than the markets had hoped, particularly following President Trump’s plea not to raise rates.  The Fed was pointing to two interest rate rises next year, instead of three as previously forecast, but U.S. data - and particularly equity performance, could lead to a change of plan at one of the next FOMC meetings - due on January 29-30 and March 20-21.   The conservative assessment by the FOMC participants may well have been an attempt to re-demonstrate the body’s independence of the Administration, but the President, who may feel that his domestic fiscal programme is being undermined, particularly if equity markets continue to slump, could be a dangerous individual to ignore.  Perhaps one could expect changes in the Fed’s leadership in the New Year, or before, under pressure from President Trump if he sees the independent body as thwarting his ideas on the U.S. position on world trade.  So far his tariff wars appear to have backfired in that the trade gap with China, the principal target, appears to have widened rather than diminished.  The performance of U.S. equities too is probably the most visible indicator to the public of financial sentiment in the nation and further falls could push the beleaguered President into more draconian measures.

We thus await the next few weeks with interest to see how things develop further.  The current breach of the $1,250 level could be significant - or yet another false dawn.  But overall things are looking positive for gold and the other precious metals - at least for now!

20 Dec 2018 | Categories: Gold

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