May 23rd Weekly Gold Market Update

After climbing strongly the week before gold slipped back last week, although not all the way. As soon as the markets opened on Monday the spot price dropped sharply and kept falling through Tuesday. Wednesday saw a slight recovery but it then turned downwards again and slid gradually through the end of the week. The final price on Friday afternoon was $1,205.90, a loss of $17.60 on the previous period. That’s disappointing, of course, but it adds up to less than half the gains of the week before and the price looks to have stabilized. That leaves things open for a recovery this week, although of course that depends on what the rest of the economy does.
Gold’s performance through the week was linked quite closely to equities, with the Dow Jones rising steadily through Wednesday before weakening slightly. Meanwhile the FTSE 100 had a very good week, climbing without a break all through the period. With share prices doing so well overall it’s not surprising that gold fell back a bit. Like the week before, gold seemed to respond more to the performance of European than US stocks and it’s likely that is, yet again, related to the ongoing chaos in the Eurozone. That does appear to be approaching a tipping point though. The European Union is now more or less open about the fact that holding the single currency together is a political project, not an economic one, and that’s likely to worry investors. There’s no doubt now that Greece is dragging the Euro down – after a slow and painful recovery it dropped again suddenly last week, back to where it was a month ago – and while that’s good news for US exporters it isn’t as popular in the Eurozone, where only Germany is a strong export performer.
The falling Euro probably also contributed to gold’s slide, drawing investors back into the foreign exchange markets. Right now the Euro, which had climbed from its February low of  $1.06 to just over $1.13, is now back to $1.10 and apparently set to fall further. At this point it seems likely that only a Greek exit will turn it around; keeping Athens linked in is going to cost a lot of money and probably mean large debt write-offs, which is going to hurt the other Eurozone members. However the European Commission has made clear that’s the outcome it wants, and now it’s just a question of whether that political objective will survive the fury of the economic realists in berlin and Frankfurt.
Meanwhile crude oil is still going absolutely nowhere, with the prices within a few cents of where they were last week – $59.72 for WTI and $65.37 for Brent. This is about the most static and uninteresting the oil market has been in years.
So overall, while it was disappointing to see gold slip back, this appears to have been more of an adjustment than a real turnaround. If the price holds up through the first part of this week there’s no reason for pessimism.

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