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LAWRIE WILLIAMS: The gold correction is in – will it last?

As we come up to the Easter holiday and trading gets thin, the opportunities for traders to manipulate precious metals prices up or down become easier and for the moment, those who would like to see prices lower are in the ascendant.  Whether gold goes into freefall and loses all its gains achieved so far this year is the big question on gold investors’ lips.  We don’t think so. But its not something that can be totally ruled out.

The gold price has indeed been volatile over the past couple of days.  It shot up on news of the Brussels bombings – and then the momentum turned against it and it started trending downwards.  It has since lost over $50 from its temporary peak bringining it back through various bearish trigger points. 

It will be interesting to see the effects on the gold ETFs in reaction.  The biggest of them all – SPDR Gold Shares (GLD) – has remained unmoved at 821.66 tonnes for the past three days – the highest level since mid-December 2013.  However the consistent upwards path does seem to have come to a halt, which could prove to be ominous for gold investors.  The gold holdings of GLD perhaps remain the best guide to sentiment in the U.S. which, for the moment is effectively where the spot gold price is set.

The latest turn-down in the gold price has been variously attributed to statements from some of the more hawkish members of the Fed’s Open Market Committee, taken as implying there could be a second rate rise announcement as soon as April, and a return to a falling oil price.  However general equities are looking shaky globally and if this continues the Fed may well again err on the side of caution at its next meeting given that further perceived tightening could be a trigger for another stock market downturn.  While some indicators are positive on the U.S. economy, others remain negative.  Gold could thus continue to play something of a safe haven role.

The gold price downturn which we have seen of late is hardly surprising with a number of even pro-gold commentators having predicted it.  An overall upwards path is seldom a smooth one.  Gold continues to flow from West to East, although perhaps not at quite such a high rate as seen in the second half of 2015 – while so far this year any shortfall in such movement has been taken up by gold moving into ETF coffers.  That this may be stuttering needs watching.

Even so, gold is still up by around 14% so far this year.  Those who climbed in big time in the second half of last year will thus have done really well.  The question is will they stay in, or take profits?  We suspect they’ll stay in because the hugely precarious debt situation generated by most central banks around the world could yet see the whole pack of cards crashing down.  Better to be safe than sorry.

24 Mar 2016 | Categories: Gold

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