December 28th Weekly Gold Market Update
Last week brought more uncertainty in the gold market, chilling hopes of a year-end rally and leaving it wide open which way things are going to go in the first weeks of the new year. Yet again we saw the spot price take a battering over the weekend, followed by a poor performance through the week that was partly salvaged by a surge on Friday. From a close just under $1,195 the previous week, gold had dropped back to below $1,180 by the time the markets opened last Monday and it stayed there right through to Friday morning. Then it suddenly took off, finishing the week right back where it started at $1,195.85. That’s a gain of just $1.65, which is insignificant.
Activity in the equities markets doesn’t really explain last week’s price swings – the Dow Jones rose gently all week, closing around 95 points up, and that’s nowhere near enough for gold to have taken such a hit. The FTSE 100 also made modest gains while crude oil continued its seemingly endless slide – standard crude fell through $55 a barrel and Brent broke the $60 mark. Market conditions suggest gold should have held its value and probably managed a slight gain, instead of fluctuating so sharply but ultimately going nowhere.
In fact it looks like the real culprit was investor fear of a sudden supply glut; rumors have been circulating that Russia, its faltering economy hard-pressed by western sanctions, was planning to dump part of its gold reserves to boost the ruble. Russia is a major gold producer and holds reserves of close to 1,200 tons, while total production this year was under 2,500 tons, so a selloff could send prices tumbling. Those fears increased mid-month when an attempt to stabilize the currency by cranking interest rates to 17 percent failed within hours, and it looks as if last weekend they reached a tipping point and prompted a move out of gold. The ruble shows signs of strengthening though, rising 4.5 percent against the dollar on Thursday, so Moscow may decide to hang on to its gold for now.
Anyway this is the last gold report for 2014 and it’s definitely been a volatile year. We’ve seen gold stay in a fairly narrow band between $1,150 and $1,400, with the trend going up until March then haltingly down ever since, but the overall result is not much movement. The spot price is seeing out the year within a few dollars of where it began and the downward trend seems to have broken for now, so while short-term investors have won some and lost some, for anyone holding gold as a long-term investment 2014 might as well not have happened. On the positive side gold has lived up to its reputation as a safe haven. On the annual scale it’s held its value through a year when the economic recovery has had its share of stumbles and signs of debt issues are rising again in Europe and the Far East. With solid support now seeming to be in place just below $1,200 we hope gold will climb back to a more realistic level early in 2015. More on that next week; meanwhile, Happy New Year.
