February 21st Weekly Gold Market Update
The recent weak performance of gold meant nobody was too optimistic going into last week, and sure enough the price ended up falling again. Monday looked quite promising, with a small gain of about $3 on the day, but Tuesday saw a drop of more than $20 followed by a more gradual slide through the rest of the period. When trading closed Friday it had finally dropped to $1,202.60, $25.30 down on the previous week. There still seems to be some support around the $1,200 level, which hopefully will cushion the price against any further falls, but that could change depending on market conditions this week.
Gold’s losses coincided with a slight rise in the Dow Jones, although the two didn’t track very closely. In fact the Dow slipped on Tuesday after the long weekend, at the same time as gold took its biggest hit of the week. Equities then recovered though, while gold kept sliding. In Britain the FTSE 100 index followed a similar trajectory to the Dow. The biggest driver on equities last week was likely the Eurozone discussions with Greece, which is still struggling to explain how it plans to get its dysfunctional economy back on track. The biggest risk is that the European Central Bank will cut off the country’s access to emergency liquidity; if that happens Athens will run out of money to pay its employees’ wages, as well as the bloated pension and benefits bill, in a matter of days. That would force a Greek exit from the Euro and a chaotic return to the Drachma, causing havoc on the currency markets. However despite worries of a collapse the Euro remained relatively strong last week, losing less than two cents against the dollar; it’s likely many speculators thought a Greek exit would actually strengthen the single currency, and this may have taken attention away from gold.
It’s a lot less likely that investors were abandoning gold for oil. After a few weeks of slowly rising prices crude dipped again last week; West Texas slipped more than three dollars to close back below $50, while Brent – which had been selling for close to $63 a barrel – finished at $58.90. This doesn’t mean we’re going to see anything like early January’s low prices again, but it does look like some of the steam has escaped from oil’s recovery.
So overall it looks as if gold has faltered and switched to a slow downwards trend for the moment. The big question is how low it’s likely to go. There doesn’t seem to be any real reason for it to fall, unless the global economy suddenly starts looking a lot healthier than it does now, so we’re putting our money on this being a short-term trend. If you currently have a strong position on gold this probably isn’t the time to sell, as your gains will be minimal and you’ll be missing the chance of much greater profits in the medium term. On the other hand of the price does get down to $1,175 again take that as a signal to buy.
