It looks like gold’s upward trend has halted for the moment, although it’s definitely too early to say whether or not the spot price is about to start heading down. Last week saw the spot price, which had dropped again over the weekend, initially rise strongly back through $1,200, then abruptly go into reverse on Tuesday and drop to around $1,187. An uptick early Wednesday brought it back up once more, almost to $1,205, but by mid-morning it had slumped back and sank steadily for the rest of the week. The final price when markets closed was a disappointing $1,180.40, a loss of $25.20 over the previous Friday. That’s a fall of around 2% – not enough to cause panic, but definitely worth some attention.
Looking at the rest of the financial markets it’s not hard to identify the reason for gold’s decline. The link between commodities and equity prices seems to be well and truly back in action, and gold’s performance through the week was more or less a mirror image of the Dow Jones index. The Dow itself is unstable at the moment following a long period of steady rise, and investors are shifting money in and out of shares on a daily basis. Uncertainty over the timing of the Federal Reserve’s long-anticipated interest rate hike is just one of the factors making the market nervous; there’s still a huge question mark over where the Euro is going to go, with Greece still hanging onto the single currency by its fingernails and keeping the Euro artificially low as a result. That’s continuing bad news for US exporters and, with the Euro stuck in a very narrow band against the dollar, isn’t generating a lot of excitement for currency traders either. It’s hard to say what will happen, but patience in European capitals is running out and the possibility of a Greek exit – followed by a rapid rise in the single currency – is looking very real. If the Euro rises expect a sharp climb in the Dow, which is likely to be bad for gold. Demand will probably slip even further as investors rush to cash in on currency deals.
Another possible factor in gold’s recent weak performance is the hint of a recovery in the crude oil market. Gains are modest so far but a barrel of WTO is edging towards $60 and Brent is already over $65. After weeks of almost no movement that’s generating some interest, and with oil as cheap as it is many investors will be attracted by the possibility of impressive gains in the near term. That’s hard for gold to compete with. Enthusiasts for oil shouldn’t get too carried away though. It’s still international policy to keep the price down as part of the sanctions regime against Russia, so governments are likely to move to slow any rise.
Overall, then, not a great week for gold and there are a few hints of further losses in the future. That’s far from guaranteed though and most analysts aren’t predicting a major slide. For now we’d say hang on to what gold you have but be ready to move fast if the price rebounds.
- April 17th Weekly Gold Market Update
- May 3rd Weekly Gold Market Update