December 21st Weekly Gold Market Update
So yet again gold has thrown all our predictions out the window, with a weekend price slump followed by a very lackluster week. From a closing price of $1,221.80 the Friday before it nosedived steadily through Saturday and Sunday, so when the markets opened Monday morning it was down to just above $1,195. By Wednesday it had fallen further to $1,190, but a slow climb on Thursday and Friday took it to a closing price of $1,194.20. That’s a loss of $27.60 over the previous week’s close, wiping out almost all the gains from the week before. After a healthy performance it was starting to look as if a sustained recovery was on the cards but unfortunately we’re back almost where we started.
Unusually after the confusing picture we’ve seen for most of this year, analysts are generally clear about what went wrong this week. After a brief dip on Monday the equities markets rose steadily all week, with the Dow Jones closing 680 points up by Friday. The FTSE 100 also performed well, climbing constantly from the start of the week to finish 400 points up at 6,545. A sudden surge in share prices is always going to have a negative effect on gold as investors rush to get on board, so it’s no surprise that the spot price didn’t make any gains this week. Of course it’s not so clear why it fell over the weekend in the first place, but weekend trading has its own quirks. However sharp falls from Friday to Monday are a pattern that we’re seeing more and more in precious metals recently and it’s caused a few upsets already. This is a trend worth watching in the future – if you’re trading for short-term profit and you’re up at 4:00pm on Friday, it’s worth considering cashing in to avoid the risk of a sudden reversal.
What we can take from the week’s figures is that support is building just below $1,200. That’s probably because of growing unease in the markets as a whole. Headline growth and jobs figures look fairly good but there’s a general feeling that something doesn’t feel quite right, and this maintains interest in gold. The European Central Bank could be planning sovereign debt purchases despite German objections, and if they go ahead that – and the storm of protest that will follow – is likely to happen in January. That’s likely to be deflationary, following the trend in Japan.
Even the USA has inflation well below the Fed’s 2 percent target, most likely because oil prices continue to fall; standard crude is just over $56 a barrel and Brent looks set to drop below $62. The impact of this on production and manufacturing costs is probably just beginning to be felt, so expect inflation to stay low for a while longer. The strong dollar is exacerbating that just now – and also drawing investors from commodities to FOREX – so moves to weaken the currency are likely. That will be good for gold, so in the medium term the prospects look good.
