April 17th Weekly Gold Market Update

A week ago it looked as if gold was settling into a slow but steady upwards trend. Right now the picture isn’t looking as clear. Last week was definitely mixed in terms of performance. The spot price fell sharply over weekend trading, opening the week almost $10 below where it had closed the previous period. That decline continued Monday, bottoming out just over $1,190 before starting to rise again. There was another, smaller, dip on Wednesday but then it recovered once more to end trading Friday afternoon at $1,205.60. That’s a fall of $1.70 over its previous close; in itself a drop that small isn’t worth worrying about but we do have some concerns at the break in the upward progress that’s been happening the past few weeks. On the other hand the good news is that during the main trading period from Monday the bulk of the movement was upwards.
Meanwhile the equities market hasn’t been doing quite as well. On Monday the Dow Jones was rising, which to most analysts explained gold’s fall. However gold turned round on Tuesday with the Dow still going up, and in fact the flagship share index kept rising through Thursday before slumping hard Friday. It ended the week around 150 points below where it started it, probably pushed down by the latest bad news for exporters. Yet again it’s Greece to blame, with the troubled country’s debt dramas lurching helplessly into a new crisis. Greece has now run out of money to pay its wage and pensions bills and, with no sign of the European Central Bank forgiving Athens for its past behaviour, emergency cash support doesn’t look to be on the table. The result is Greece has made a $5bn pipeline deal with Vladimir Putin; that solves their immediate cash flow problems but weakens the EU’s united economic front against the Kremlin. Unsurprisingly the Euro dropped again at the news, making US exports even more uncompetitive. The best thing that could happen now is for Greece to be forced out of the Eurozone and start recovering with its own currency. Meanwhile the Euro would rise dramatically, which would be great news for American manufacturers.
Moving back to the commodities market, gold is once more facing some competition from oil. Crude prices have seemed stuck in a narrow band for a while now but last week they managed to break free at last; WTI is up around $5 at $55.47, while Brent broke the $60 mark for the first time this year and ended the week at $63.45. A year ago those prices would have looked bargain basement but right now they have oil traders buzzing, and that enthusiasm could push them higher this week – which will draw some money away from gold.
Putting a different spin on it though, last week might have looked sluggish for gold but that’s being distorted by the strength of the dollar. Against every other major currency gold has more than held its own over the last 14 months; it’s actually rising, not falling, but right now the dollar is rising faster. For the rest of the world gold is doing a great job as an investment. It’s worth remembering that the dollar’s strength won’t last forever, and when it slips back gold is going to look very good indeed.

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