December 15th Weekly Gold Market Update
The turmoil in the precious metal markets continued last week, and while gold had a mixed week things were generally positive. The spot price rocketed as soon as trading opened on Monday, reaching the week’s high of $1,232.40 on Tuesday. It then slipped back gradually for the rest of the week to close at $1,221.80, but that’s still $28.70 better than at the close of the previous period. In fact it takes gold to a six-week high, with the spot price currently in territory we haven’t seen since the end of October. It’s too early to say if this is the start of a real recovery, because we’ve seen it fall back more than once recently, but the data now shows a slow upward trend that set in the first week in November. It looks like it’s time for cautious optimism.
One encouraging point about gold’s performance is that it wasn’t closely linked to the equities markets. The Dow Jones fell sharply on Monday, coinciding with gold’s rise, and that’s exactly what we would expect to see – nervous investors moving to a hedge position. The Dow continued down all week though, finally closing on a 670 point loss, and gold declined slightly in that time. That suggests there could be an underlying correction at work as well as normal market dynamics. Gold is clearly undervalued right now and at some point buyers will become aware of that. The process could be underway right now, and if it is we can expect to see further gains over the next few weeks.
Any recovery in gold leaves it well placed to benefit from the continuing collapse in the other commodity market staple, oil. The freefall of crude prices still shows no sign of letting up, with standard crude now at $57.81 a barrel and Brent down to $61.85. Both these are well below five-year lows and still falling. That’s likely to benefit equities in the medium to long term as production and transport costs come down, but in the short term the advantage lies with gold.
We’ve been caught out too often this year to say for sure that the gold price is on the way back up, but the trend that seems to be setting in does give us some more confidence this time. Looking back to the beginning of November gold has risen and dipped several times, but the underlying movement is now firmly upwards. The fact it’s not solidly linked to the stock markets, which have also generally been rising over the same period, is an indicator that a floor has been reached and the price is drifting up to a more realistic level. Some support could be building at the $1,200 point and there’s a good chance early November’s slump represents a low the price won’t be seeing again.
There still isn’t any sell indicators unless you picked up gold five weeks ago at a low premium and want to make a small short-term profit, but the current healthier trend is sending a strong buy signal. The price is still very tempting and the future is looking a bit brighter than it has for a while.
