LAWRIE WILLIAMS: Gold: What a difference a month makes

A week is said to be a long time in politics.  A month can be even more so in gold price performance!  On June 1st the gold price looked to be under pressure at a little over US$1,300 having been languishing in the $1,270s only a couple of days earlier. Then came the Memorial Day holiday and, as with some other major U.S. holidays beforehand, this seemed to provide an inflection point impetus for the gold price which stair-stepped its way up to the $1,440 level over the following 3 weeks before being brought back ( an expected correction?) to the current $1,380- $1,390 level after the end-June G20 meeting in Japan. One wonders of course whether the imminent Independence Day holiday will provide another inflection point for the gold price – and if it does whether it will be upwards or downwards.

Of course geopolitical events often provide the stimulus for a move one way or the other.  Could the G20 meeting between Presidents Trump and Xi lead to an accord on U.S./China trade and tariffs or are we going to see another deadlock and the imposition of more tariffs on Chinese goods entering the USA - and perhaps Chinese retaliatory measures including the cessation of essential rare earths exports needed for high tech weaponry among other uses?  China dominates global rare earths production which cannot be replaced short term from U.S. domestic sources or from production from U.S.-friendly nations. President Trump, for him, seemed to take a more conciliatory tone with his Chinese counterpart, which included some backtracking over Huawei, but the agreement to resume trade talks between the two superpowers does not necessarily mean a deal is imminent.

A convivial meeting with the Saudis, despite al-Qaeda and ISIS roots being somewhat based on Saudi Wahabist religious doctrines and the diplomatically-avoided mention of the Khashoggi murder in Turkey, suggests that President Trump’s principal G20 motive was bridge building with some of the world’s more autocratic regimes.  This seems to have been at the expense of seeking accords with the nation’s more traditional allies. 

The principal absentee from the Trump love fest among the more totalitarian nations attending the G20 seems to have been Russia.  Maybe the U.S. President is attempting to create a wedge between Russia and China by allying with the latter - which might be a smart diplomatic move to split two of the world’s three superpowers from taking a concerted antagonistic position to the U.S.

The somewhat impromptu meeting with North Korea’s President Kim also looks as though it may have, at least temporarily, reduced tensions on that front too.  However the U.S. President has the capability of undoing these diplomatic moves with the kind of ill-considered tweet to which he can be prone.

But overall the G20 meetings look to have been a remarkably successful diplomatic outing for the often mercurial U.S. President, although he still remains somewhat isolated on the climate change/global warming front.  The meetings may well play well with the U.S. electorate given the 2020 Presidential election campaigning is already under way.  It will have certainly enhanced his chances of becoming a two-term President.

On a potential Iran conflict. might a seemingly increasingly aggressive President Trump in this arena and his perhaps even more aggressive advisers - given their supreme confidence on the overwhelming superiority of the U.S. military machine - implement even a limited strike?  The danger here is that Russia, and/or China, - both of which appear to be Iran-supportive - might use such a confrontation as a covert proxy opportunity to test out their latest defensive weaponry against the U.S. - potentially leading to a serious escalation of such a conflict?

So what does all this mean for gold and precious metals?  A potential trade accord with China - and Trump may be willing to make some further concessions here - will reduce global tensions and could lead to a further fall, depending very much on how the G20 is viewed by the U.S, public.  We doubt much will happen, though, until the end of the Independence Day holiday at the beginning of next week with gold likely being range-bound between $1,375 and $1,400 in the meantime.  Beyond that who knows?

We still think that potential geopolitical upheavals, particularly in the Middle East, will be gold, and silver, positive - particularly following on from slightly worrying U.S. domestic data in the light of the sub-50 reading of the Chicago PMI measurement last week.  The G20 may have eased international uncertainties but agreeing to further talks with China is far from the same thing as actually reaching a satisfactory agreement in the talks, particularly given the acrimonious breakdown of the last set.

As we noted as likely in an earlier article, in the light of June’s sharp upwards gold price movement analysts have been upping their gold price forecasts.  At the beginning of the year most of the positive calls were for a $1,400 year end gold price.  Now there are more than a few forecasting $1,500 or higher and we’d have to concur.  However there are 6 months to go until the year end and plenty of time for the precious metals to move substantially upwards or downwards in the interim.

01 Jul 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