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LAWRIE WILLIAMS: Is $1,900 gold’s real short term top?

It can’t have gone without notice by gold followers that every time the gold price has threatened to break back upwards through the $1,900 level, it has been very sharply, and immediately, slapped down again.  Even those with short term memories will recall there was a similar struggle for gold to break up through $1,800 back in July – the hundreds seem to present psychological levels for gold, perhaps due to high frequency trading algorithms setting such levels as tops – but one should also recall that once this level was breached both gold and silver advanced very rapidly.

While we’re not necessarily suggesting that gold will behave similarly around $1,900, the possibility that it could do should be taken into account when assessing gold’s, and perhaps silver’s, investment potential.  We did predict back in July that gold could hit $2,000 in Q4, although not necessarily stay there.  Well this happened a month or so earlier than we anticipated, prompting a take-down by those short sellers with an agenda to keep prices under control.  However now we are past the end of the month and the end of the quarter, we could be in a new ballpark figuratively speaking and we suspect that $1,900 may be breached again shortly.  Indeed the price has regained the $1,900 level as I write, but whether this can be built on once U.S. markets open remains to be seen.  Whether this will give gold the momentum to move substantially higher and attack the $2,000 level again is uncertain , but we think there is a strong chance of this occurring before the end of Q4 at least.

As for silver, the $24 level is in sight again, but whether it will rise to the $25 level again this year is probably less certain.  Investors in the metal, dragged in by its sterling performance in the early part of last month, will have had their fingers burnt yet again in yet another demonstration of the ‘devil’s metal’s penchant for extreme volatility.  One should remember that when silver was marked down drastically after its foray up to close to $50 in 2011, it came down sharply, and stayed down for nine years before its recent return to investment favour.  Even relatively short memories may be aware of this and that could mean that any price rises to come remain muted.  True, this volatility pertains also to its upwards path but one suspects caution may be the at least temporary watchword for the putative silver investor.

The debacle which was the U.S.’s first Presidential debate yesterday – we warned that President Trump was unlikely to abide by whatever debate rules may have been decided on beforehand – gave no real indication of any change in the election odds, with both sides claiming ‘victory’.  From afar it might be assumed that Trump’s bullying tactics might rebound against him, but in the American context this might be perceived as Biden’s weakness. 

We are no nearer predicting a result, but one thing is clear – whichever side wins the final countdown will undoubtedly spend considerable sums to attempt to mitigate the effects on the economy, and the population, of the seemingly unstoppable COVID-19 virus.   More money pumped into the economy will likely be to the long term benefit of gold, and perhaps a further weakening of the dollar. 

In the meantime uncertainty over the election outcome – and the polarising effects on the American people whichever way it finally goes - may set the scene for ongoing dissension which will make the U.S. an even more uncomfortable place in which to live.  That may well boost the favourable appeal of traditional safe havens like gold.  The next five weeks will be interesting indeed.

01 Oct 2020 | Categories: Gold

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