December 1st Weekly Gold Market Update
Once again the gold price has turned unpredictable, throwing out every recent prediction of a continued recovery. The spot price started the week looking positive, with a slight rise on Monday boosting hopes that it would be another good week, but a reversal on Tuesday saw the price drop back below the $1,200 mark and the decline accelerated from there. Finally Friday saw a full $20 dip to $1,165, before the market managed to stabilize and creep back up to $1,168.50. Overall that’s a drop of $33.60 on the previous week’s close, wiping out everything it’s clawed back over the past two weeks and reviving worries of a further slump.
Looking at how equities performed over the week doesn’t offer any clues to what went wrong. The Dow Jones Industrial Average also trended down most of the week, with a recovery on Thursday crashing back to earth the next day. Friday afternoon saw it close just 0.1 percent up on Monday’s start. Meanwhile across the Atlantic the FTSE 100 registered a 6-point drop. This came as a surprise, especially the sluggish performance of the Dow, because Tuesday’s revised US growth predictions pushed third quarter growth up to 3.9 percent. That’s actually the best Q3 growth in more than a decade, driven mostly by increased consumer spending, so there’s no obvious reason for the markets to look so weak – and in any case flagging stocks should benefit gold.
There’s no explanation to be found in other commodity prices either. In fact crude oil prices suffered a minor collapse on Friday, with standard crude dropping 11.4 percent to close the week at just $66.15 a barrel and Brent shedding almost as much, finishing at $70.15. That puts the price of energy at a 4.5 year low, and while this is good news for the economy in the medium term it should again have nudged gold upwards.
Right now the most likely answer is that despite the good US figures the markets are reacting to mor eglobal concerns. The European Central Bank is negotiating right now with several major EU economies, including France and Italy, which are all currently exceeding their spending targets. The aim seems to be relaxing the austerity regime in repsonse to public pressure but it’s bound to fuel the reviving debt fears in the world’s largest economic bloc. With growth there slowing even in Germany this is going to make investors cautious, and any European crash would soon have an impact in the USA too.
So as far as gold buyers are concerned it’s back to a strategy of holding on to what you have and waiting for the spot price to recover again. We still can’t see any reason for prices to be as low as they are, and despite a few dire predictions of a slump to as low as $700 per ounce it’s not likely it will fall much more. If the EU does slip back into recession that’s going to fuel demand, as would a slowdown in the Chinese economy, so don’t panic just yet.
