May 3rd Weekly Gold Market Update
Last week saw gold fall to the lowest it’s been since late March, as well as giving one of the biggest Monday to Friday drops we’ve seen in quite a while. It’s not all bad news though, because the actual loss over the previous Friday’s close added up to just $2.50. The reason for that was a massive spike over the weekend that saw the spot price shoot up by more than $30, peaking at around $1,212. Unfortunately it then went into freefall when the markets opened Monday morning, and dropped like a stone all week. By the time the last trades went through on Friday it had lost all the weekend’s gains and more, closing the week at $1,177.90.
What’s possibly more worrying than gold’s modest fall over the period is that the inverse link between commodities and equities, which seemed to have rebuilt itself, collapsed spectacularly again last week. The Dow Jones climbed on Monday, when gold was already dropping sharply, but then turned around and dropped just as rapidly itself. Meanwhile the FTSE 100 fell immediately. Both indexes continued down until Thursday, then picked up again. Neither of them got back up to where they were at the start of the week, although the Dow came close, but the fluctuations in equities didn’t seem to have any effect on gold’s performance.
If gold and stocks are falling together that usually means investors are being drawn somewhere else, and last week it seems likely they were distracted by the currency markets. After several weeks stuck below $1.10 the Euro began a sudden recovery on Monday and by Friday morning had reached $1.129. It fell back slightly later in the day to close a fraction of a cent below $1.12, and is still sitting far below where it was a year ago, but this is the first sign of health the single currency has shown all year and that’s bound to generate some enthusiasm for FOREX. With the Euro rising it makes sense to buy them up now, but that’s a high-risk strategy; it’s likely the rise is coming from the impending bankruptcy of Greece, which could easily be forced out of the Eurozone this month. A Greek exit would improve the zone’s average financial health and probably see the Euro climb to at least $1.25, but what many observers underestimate is the political will to keep Athens in. The EU sees integration as a one-way process and a lot of its credibility is tied to that; if Greece leaves the Euro it will be seen as a major setback, so Brussels is willing to spend a lot of money holding things together – and if they succeed the Euro will likely fall again.
Meanwhile oil prices seem to have stabilized again around where they were a week ago, with WTI at just under $60 and Brent at $66.46. It does look as if the price of a barrel is edging up but once again it’s not looking very exciting.
So overall gold’s performance last week looks very bad, but the actual fall is almost insignificant. Despite appearances we don’t think it’s any reason to change your investment strategy just yet.
