July 21st Weekly Gold Market Update
It’s been a slightly rough week for gold, which finished last week looking poised for an increase. Instead, a rapid fall kicked in as soon as the European markets opened on Monday and carried on through to late on Tuesday. The price didn’t bounce until it hit $1,296.90, then slowly rallied back above the $1,300 mark until suddenly climbing to $1,316.70 on Thursday. That rally faded out too, and when the market closed on Friday the spot price was left at $1,309.20, a shade over $10 down on last week’s close.
Gold has been holding on well – even managing to slowly gain value – in a market that should have seen a drop in metal prices, and gradually that’s built up a well of optimism about a sustained rise. It looks like that might have been premature, because with its upward momentum lost gold could find it difficult to turn this week’s fall around and might well drop further. Some analysts are predicting a drop to $1,200 or even lower, although it’s probably a bit early for that.
So what’s changed since last week? The US dollar is continuing a rally that began in late June, and a strong dollar often pushes down metal prices. With the economic recovery still looking like a viable proposition there’s less pressure on investors to look for a refuge, the role gold and silver have traditionally held. Stocks are climbing steadily and that trend doesn’t look like changing in the near term, so commodities are dropping down many investors’ lists.
If anyone is looking at commodities oil is the obvious choice right now. There’s no sign of any improvement in Iraq, where the ISIS insurgents still control much of the country and the government is struggling to hang on. As for the brushfire war between Ukraine and Russia, which has been grumbling on for months, that escalated dramatically on Thursday with the news that a Malaysian airliner had gone down over the disputed Donetsk region. The first reports of the crash helped give gold a boost, speeding Thursday’s rally, but as it started to look like Russian-backed separatists had brought it down the spot price eased back again to its closing value. That makes sense; pressure for further sanctions on Russia just hugely increased, and with Russia being the world’s largest energy exporter any sanctions are likely to cause a spike in oil prices unless the OPEC nations raise production to compensate.
The outlook for gold just got a bit harder to predict. If you’re looking at it as a long term investment there’s no reason to sell off your holdings unless you want to buy back when it hits a floor – but don’t discount the possibility that it could reconsolidate around where it is now. At the moment the best advice for long term purchasers is to hold on until there’s a hint of a downward trend setting in. That could take a few more weeks to emerge. If you’re after a short term profit, on the other hand, this could be a good time to sell off.
