LAWRIE WILLIAMS:; Gold could have an extremely good H2 – Murenbeeld

Martin Murenbeeld’s Gold Monitor is, as many of my readers will know, one of the regular publications I follow avidly.  It always contains rational analysis of the driving forces behind the gold market and is not prone to the kind of hype seen in many other utterances by so-called, often self-styled, gold gurus!  To subscribe to the Murenbeeld Gold Monitor click on www.murenbeeld.com.

As an introduction to the latest Gold Monitor suggests, Murenbeeld and his colleagues think that the US dollar may well have already peaked for 2019and if so, then they consider that the gold price outlook brightens considerably! (The U.S. dollar index fell quite sharply on Friday.)  Their only caveat is that a President Trump initiated trade war could turn so ugly that global investors flee into US Treasuries – the market for which is still plenty large enough to handle international flights to safety.

But on the trade war front, that with Mexico, which had caused some concerns across political divides in the U.S. appears to be winding down already.  President Trump has tweeted that initial moves by Mexico, ostensibly to help control the flow of potential illegal immigrants to the U.S. across Mexico’s southern border with Guatemala, has been sufficient to withdraw the immediate tariff threats. 

Whether this is actually a vindication of Trump’s hard line approach to the potential problem, or an acceptance that tariff impositions on the so-called grounds of national security are both a political and economic miscalculation, remains uncertain.  No doubt Trump will claim victory for his hard line, but incrementally increasing tariffs on Mexico could be hugely counter-productive in terms of a heavy blow to the latter’s economy, which could easily fuel increased illegal immigration, and also end up putting prices up for many in the U.S. itself.  The law of unintended consequences!

But the apparent far more serious trade war with China remains unresolved.  Undoubtedly the raising of tariffs on imports from what is now the world’s second largest economy, will lead to the stuttering, perhaps temporarily, of the latter’s economic growth, but as we have said before China is almost certainly more resilient to this than the Americans may calculate.  And increased tariffs on Chinese imports will certainly lead to rising prices in the U.S. itself without necessarily stimulating the U.S. manufacturing sector.  An adverse payments balance with China, and many other countries, is perhaps a price the U.S. has to pay for its many years of gaining economic and trading advantage through the U.S. dollar having been pushed to become the globe’s principal currency of trade and the world’s primary reserve currency.

If Murenbeeld and his colleagues are correct in their assumption that the dollar has topped and the dollar index has started to slip, then this alone will be gold positive since there tends to be an inverse relationship between dollar strength and the gold price.  But additionally there are indicators that U.S. growth is not nearly as strong as the U.S. Fed was predicting only a short year ago.  Indeed the odds are rising that the Fed, instead of raising interest rates as it initially suggested, may instead cut them either at the FOMC meeting this month in 10 days time, or perhaps more likely at the end-July meeting.

While the gold price was not allowed to end the week above $1,340 and silver above $15, many analysts feel that this position cannot be held this coming week and that gold is set for $1,350 or above and perhaps silver, which has been a big disappointment of late, could even advance to $16. It will probably take a solid rise in the gold price for silver to regain even some of its lost ground, but if Murenbeeld is correct in his prediction that gold could be set for an extremely good H2 – and a good 2020 also – then the gold:silver ratio could start to come back to the latter’s advantage.  Murenbeeld notes that the key may be if gold breaches the $1,366 high point last achieved in late 2015.  This he considers would be a very bullish technical sign.

The latest Gold Monitor also takes the European economic situation into account – particularly a possible serious clash between Italy and the EC hierarchy.  The letter notes that when the Greek economic situation blew up it was gold positive and Italy is a huge economy compared with that of Greece (Italy = Greece x 10 as the newsletter puts it.)

So there would seem to be a number of factors in favour of gold advancing – and it could all be enhanced by a major geopolitical fall-out, and there is plenty of potential here and with President Trump’s apparent unpredictability and shoot-from-the-hip approach to diplomacy you can’t rule any of these out.  But then we have been here before without gold taking off. So who knows? 

We are seeing a small recovery in gold mining stock prices at last – not before time many will say – but although this may indicate an upswing in investor sentiment for now there are other risk sectors – cannabis stocks and bitcoin for example - which could be creaming off some of the risk capital which is out there.  Gold thus needs to perform for any sustainable recovery here.  Gold bulls are desperate for the anticipated upswing.  Could this be the time?

08 Jun 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