LAWRIE WILLIAMS: The ongoing gold price battle
Gold price followers can hardly not be aware of the battle between the gold bulls and bears which has been ongoing for the past couple of weeks. This was seemingly very much precipitated by the most recent Federal Open Market Committee (FOMC) meeting on July 31/August 1 and then by U.S. Fed chair Jerome Powell’s statement on the U.S. economy and likely Fed interest rate policy for the remainder of the year. Coupled with a weak time of the year and a remarkably, and we think unjustifiably, strong dollar, this pushed gold’s trading range back around $20 and the price has been yoyoing between the low $1,200s and a little short of $1,220 ever since.
There has been a remarkably consistent price pattern over this period of time. Most days gold is marked down early in the day, makes something of a recovery and then is brought down again when the American market gets under way, before again making something of a recovery and trading flat to the U.S. close.
Some commentators point to the timings of the price downturns as evidence of manipulation by the big bullion banks following a pattern they see as initiated by the U.S. Fed and Treasury who may see the price of gold as a potentially unwelcome bellwether for the perception of how well the U.S. economy is really doing.
Whatever, the distinct price pattern of the past couple of weeks suggests a continuing tug of war between those who would like to take the gold price lower – perhaps below the psychological $1,200 price level – and those wanting the gold price to return to some of the strength it showed in the first three and a half months of the year when it seemed to be heading inevitably towards $1,400 and higher.
We still have around three weeks of a traditionally weak month for gold remaining and we could well see the current ongoing price battle continue over that period. However, gold could be due a run with some alternative investment options looking less optimistic – notably general equities which are trading nervously again with the indexes hugely dependent on a very limited number of mostly tech stocks. Bitcoin too has been coming back down again after a brief surge prompted by a plethora of promotional comment from perhaps not uninterested parties. Re the cryptos we like to keep an eye on Ethereum which has fallen to its lowest point since November last year and around 75% off its peak at the height of the bitcoin bubble euphoria as recently as in January this year. This makes gold’s rises and falls look almost minuscule by comparison and demonstrates the real risks attached to bitcoin investment.
But back to gold’s recent trading pattern – will it break out and if so in which direction? We suspect it may continue around where it is until after the U.S. Labor Day holiday which often seems to provide an inflection point for markets with the financiers returning refreshed from their Summer breaks.
A certain amount will depend on the dollar. President Trump’s latest batch of Chinese import tariffs are set to kick in later this month, as are retaliatory measures by the Chinese. In combination and with other tariffs and events U.S. inflation may begin to notch up noticeably which could limit the Fed’s programme to normalise interest rates and the dollar could start turning down as a result. If this happens and the dollar continues to drift downwards the gold price could receive a welcome boost, driving it back up through $1,300 again. We don’t think earlier forecasts of a year end gold price of $1,400 or higher are likely though, although by then it could be heading in that direction again. Thus all may not be lost for gold investors, but any such prediction remains decidedly speculative at this time, but watch out for a possible change in direction next month when gold may at last come out of its midsummer blues.
10 Aug 2018