April 4th Weekly Gold Market Update

Gold ended the previous period on a dip, and that continued last Monday; combined with losses over the weekend it took the spot price down to a fraction over $1,180. A strong rally on Tuesday saw it rise back to the $1,200 mark and beyond, however, and despite lackluster performance on Wednesday and Thursday morning it stayed up there until trading closed Thursday midday. The final price for the week stood at $1,202; that’s just $3.60 up on the week before but at least it is up. We’d have preferred to see a stronger rise before the Easter weekend but looking at the price movements over the last month there’s a good chance that gold will climb again this week.

Two weeks ago there was a very close correlation between the gold price and the equities markets, marking a return to usual form after several weeks when the two seemed to be following each other instead of moving in opposition. The relationship wasn’t as neat last week but there was still a general pattern of gold rising as shares dropped – the Dow fell along with gold on Monday but then kept going down as gold recovered, before staging a small recovery of its own on Thursday while gold stayed static. The global economy was in a complicated position last week, with US nonfarm payroll figures again slightly better than expected but the Eurozone still in deep trouble. The Euro itself has barely moved since last week and seems unable to break back above $1.10. That’s going to mean continued difficult times for US exporters as the single currency’s weakness keeps their goods more expensive in the world’s biggest import market. As always the problem is Greece, which is now essentially out of cash reserves and plundering state assets to pay its bloated wage and pensions bills.

If Greece defaults on its scheduled €450 million payment to the IMF – which is due Thursday – there’s a good chance it will be forced out of the Euro, pushing the single currency up and boosting the share price of many leading US firms. That would push the Dow higher, which would put a downward pressure on gold. At the same time it would probably decrease demand for gold in Europe, at least in the short term, as investors rushed to make money off the rising Euro. So any move towards Greek exit is bad for precious metals in general – but there’s a lot of determination to hold Greece inside the single currency, and if that happens expect gold to keep heading up. Not only will it look a more attractive option than non-Eurozone equities, there will be a lot of demand for a safer option from inside the Eurozone itself.

Meanwhile oil prices continue to struggle, with West Texas Intermediate finally managing – just – to break the $50 point, but Brent actually falling back slightly to $54.95. There’s been little real movement in the oil market since early March, so as an investment it’s still looking unattractive. Overall we think there’s a better than even chance of gold gaining value this week.

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