May 9th Weekly Gold Market Update

After freefalling at the end of April gold had a slightly better time of it last week. Its performance was highly variable, with no clear trend in direction appearing – a sharp improvement began over the weekend and continued through to early Wednesday, bringing the spot price up to around $1,193, before a sudden drop back to just below $1,185. On Friday, however, it turned round again and closed the week at $1,187.50. That’s a gain of $9.60 over the Friday before, far from spectacular but moving in the right direction again and more than making up for the previous period’s $2.50 loss.
It’s a lot easier to make sense of gold’s movements last week than it was the week before. It looked as if the link between gold and equities had broken again, but it seems to be back to business as usual. The Dow Jones started falling almost as soon as trading started on Monday, while the FTSE 100 hung on to its value through most of Tuesday before starting to slide. That downward trend in equities coincided with gold’s initial rise, as we’d expect. Then, when the Dow turned back up again, we saw gold prices fall. The FTSE didn’t recover until Friday, when it became clear the leftist Labour Party weren’t going to win the UK general election – and it’s probably that fact that pushed gold back up on Friday, too. Labour are generally hostile to the investment markets and the thought of them gaining control over the City of London made a lot of investors nervous, especially after former leader Gordon Brown crashed the gold spot price by selling off most of the UK’s reserves – and announcing his plans in advance.
Meanwhile oil prices look stagnant again, with a barrel of WTI still selling for just under $60 and Brent little more than $5 higher. A very slow upward trend seems to be in place but it doesn’t offer much prospect of short-term profits, so most of the investment action is still going to be in stocks, commodities and currency. The Euro is still attracting a lot of interest; Greece is edging ever closer to a messy default, which most analysts agree would eject the country from the single currency. However there’s a lot of political will to keep them within the Eurozone even if they do hit the buffers, so default without exit is a real possibility. If Greece leaves the Euro will rise sharply; if they limp on like this it will probably stay below $1.15 for the foreseeable future, and if they default but stay in expect to see a dollar buying €1.20 or better. Either way a default has a lot of potential for investors who get it right and that’s going to pull money away from precious metals.
In general this was a fairly good week for gold; any downward trend seems to have been arrested for now and there’s no reason for the spot price not to rise modestly this month. There will be ups and downs but the general trend is likely to be slightly upwards.

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