May 17th Weekly Gold Market Update

If you have any gold holdings last week turned out to be very positive. In contrast to its hesitant progress since mid-April, the spot price started climbing as soon as the markets opened on Monday and didn’t change direction all week. The rise slowed down slightly on Friday but all the significant movement was still in the right direction, and by the time trading finished gold was standing at $1,223.50. That’s $36 higher than the week before, close to a 3 percent increase, and the best price we’ve seen since mid-February. Is this a short-lived spike or the first signs of a stronger upward trend? It’s too early to say, but either way this is a promising sign for anyone interested in gold.
What’s surprising is that, yet again, the link between gold and equities seems to have faded (although not quite disappeared). The Dow Jones fell slightly from Monday through to Wednesday, coinciding with gold’s rise, but when it turned round and climbed back to well above its opening position gold kept going up too. The rate of increase did slow down but it certainly didn’t turn round in response to the rising Dow. What’s possible is that gold was more heavily influenced by the European markets, which saw the FTSE 100 fall significantly from where it had climbed the week before in response to the UK election results.
Interestingly, the spot price doesn’t seem to have been affected much by the currency markets either. Recently we’ve seen gold fall when foreign exchange movements have attracted investors to that sector; with the turmoil in the Eurozone there’s been a lot of potential for short-term earnings there since the beginning of the year. The Euro has been climbing steadily for the past week, not spectacularly – it’s still barely above $1.13, 20 cents below where it was a year ago – but still looking healthier than it has for a while, and we’d expect that to have shifted a lot of investor interest away from commodities, but gold has pushed through it and continued to rise. The issues with Greece’s debt haven’t gone away, though, and buyers may be taking the long view and opting for a safer option.
Meanwhile the oil market is still stagnating, with prices almost unchanged from last week – WTI a few cents under $60 a barrel, and Brent at $66.57 on Friday – so it isn’t offering much of an attraction compared to a rising gold market. Until oil prices start to move this factor should give gold some extra support, and that’s very welcome considering how variable the market has been recently.
So in general this has been a good week for gold buyers. Those who bought recently now have the option of cashing in, while longer-term investors can see the potential for more gains in the future. It is fair to say that a strengthening Euro would be a boost for US exporters, probably leading to a rising Dow and more competition, but for now it’s looking like a positive trend for gold.

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