December 8th Weekly Gold Market Update
After the dramatic slide we saw at the end of November gold buyers were watching the market nervously last week, trying to get a sense of what the immediate future holds. Friday’s close would have brought some relief, but probably not a lot. Weekend gains meant when the markets opened on Monday the spot price was $45 up on the previous close, but it then spent most of the week slipping back. When trading ended Friday it was down to $1,193.10. That’s still $24.60 higher than where it was the week before but the negative trend is a worry.
While gold has been heading down for a while we can at least find a factor that would explain its further losses last week. Over the period the stock markets climbed steadily, with the Dow Jones picking up 223 points and the FTSE 100 gaining 63. After the previous week’s lacklustre performance these gains will have attracted more money into the equities sector and that’s inevitably going to affect demand for gold, so it’s not completely unexpected. The market is also probably suffering after-effects of last week’s Swiss referendum. There was a proposal to make the national bank boost its gold reserves, which would have generated a healthy demand, but under Switzerland’s political system the public had to be allowed to vote on the plan – and they turned it down. Gold took an instant hit at the news and that effect probably hasn’t completely faded.
Right now gold is well placed for a good performance relative to other commodities; poor Chinese growth figures have depressed prices for base metals and other raw materials, and the crash in crude oil prices shows no signs of ending – standard crude is now heading relentlessly for $65 a barrel and even Brent is below $70. The slide was started by increased US domestic production but has accelerated since OPEC decided not to reduce their output quotas. Unless that changes oil is looking at further falls, leaving gold as the commodity of choice. Unfortunately everything else seems to be conspiring against it.
In the medium and long term we expect to see gold make a healthy rebound, because the main industrial use – electronics – is still a growth sector and jewelry is perennial. The problem right now is that confidence in metals has been badly shaken by this year’s trends and that makes people more willing to take risks with shares than we would expect in the current climate. While equities have made money this year here have also been quite a few sharp reverses and normally gold should have profited from that. Hopefully the trend will reverse itself in the New Year.
With gold close to a five-year low it’s an ideal time to stock up if you’re looking at a long-term investment. On a decadal scale the spot price always heads up, so while gold doesn’t look promising in terms of immediate gains its investment potential remains – and of course if you’re looking at it as a hedge against currency collapse this is a perfect opportunity to boost your holdings cheaply.
