LAWRIE WILLIAMS: Post Labor Day gold, silver, pgm corrections extended

Gold investors with relatively short memories will have Labor Day 2012 writ heavily on their hearts.  The aftermath of this major U.S. holiday seemed to provide the inflection point which ended the gold bull market, which had seen the price rise to a new all-time intra-day high of over $1,900 and fully enter a three year bear market which took the price back to only a little more than $1,000.  Will this year’s Labor Day prove also to have been the turning point for the recent precious metals bull market which had taken gold to $1,550, silver to above $19 and platinum to a little short of $1,000?  All these had been interim highs, although well short of heights achieved in the first couple of years of the current decade for gold and silver (or in platinum’s case early 2008 when its price exceeded $2,000 an ounce.)

We suspect things are a little different now though.  The precious metals have not reached such dizzying heights this time around and are not seen to be in bubble territory as silver was in 2011 and gold in 2012.  We reckon that prices will recover back to their pre-holiday levels fairly quickly.  As we have stated in previous articles we see an equities crash coming sooner rather than later. And fear of this will drive investors into the safe haven/wealth protection mode offered by the precious metals - with gold in particular re-asserting itself.  Silver will likely follow suit but being far more volatile may lag gold in this respect, but when it does start to move it will probably outperform its sibling metal in percentage terms.

Another element lending support to the gold price this time around is that some big names in the institutional sector, like Ray Dalio, have been singing gold’s praises which should mean there is good institutional support this time around. Indeed the recent downwards moves in precious metals prices look very much like overdue corrections, from which prices will likely recover and go on to new highs.  They may take a little time to do so but we would envisage that over the next month or so, prices should be on the ascendant again unless there is a major change in direction signified by the U.S. Fed at its next FOMC meeting in a week’s time and at subsequent meetings in late October and mid-December..

It is widely anticipated that the Fed will implement another 25 basis point cut in interest rates at the September FOMC meeting, and the minutes and Fed Chair’s Jay Powell’s statement on the deliberations will be scanned closely by the markets for hints as to whether there will likely be further rate cuts coming at the scheduled October and December meetings as many expect.  In the interim the gold price in particular will be data driven, with government and independent announcements on the state of the U.S. economy and labour markets driving gold up, or down, depending on how these statistics are viewed.  The Fed seems to be of the opinion that the U.S. economy is in robust health but there are seemingly always some data releases which would seem to contradict this.

The resumption of trade talks with China, now due to begin again next month is also seen as positive for equities but negative for gold.  This is on the assumption that some agreements will be reached which will allay the Trump-imposed tariffs and retaliatory measures from the Chinese.  But the positions taken by both sides have been widely disparate and we do not see any significant concessions being taken by either and this next stage of talks could well end in yet another acrimonious impasse.  That would be negative for the U.S. and global economies and probably positive for gold.

There are economic headwinds in Europe too with huge differences among politicians of all hues over the possibility of a disorderly Brexit, while we don’t see the cobbled-together left/right political alliance forming the government in Italy staying the course.  This could open the way to elections there which could see a strongly anti-EU faction coming to power, or increasing its influence, which would be yet another destabilising factor for the European economy.

Whether John Bolton’s departure as President Trump’s National Security Adviser will be a positive or negative factor for gold remains to be seen.  If the U.S. becomes less interventionist as a result it could slightly reduce geopolitical tensions, but although President Trump says he will reduce the U.S.’s interventionist policies he seems to have done little to bring this about.  As a great showman he is keen to highlight meeting with world leaders who might be opposed to U.S. policies, but little seems to be achieved by these meetings beyond photo-opportunities which are a play to his sycophantic audience, but could stand him in good stead for the 2020 Presidential Election, which seems to be approaching fast.  With the Democrat opposition in seeming disarray the chances of a Trump second term seems to be a definite possibility, if not a probability, providing the U.S. economy doesn’t implode in the meantime.

Precious metals have picked up a little today, and this morning retook the $1,500 level in European trade.  Whether that key level will survive the U.S. market today remains to be seen but we see the overall trend as upwards again unless there is some strong negative data for gold ahead.

12 Sep 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