February 8th Weekly Gold Market Update
After ending the previous period on a rising trend gold fell significantly last week, dropping to not far above $1,260 on Monday then holding around that level for most of the week. Hints of a recovery were dashed on Friday when the price abruptly dropped to close at just $1,233.30, making for an overall loss of $49.80 for the period. That’s close to 4 percent, not a good week by any standard. Unfortunately it looks likely that this week will see prices slip again, although probably by a more modest amount.
The most likely downward driver on gold was the latest nonfarm payroll numbers, which showed 275,000 new jobs were created in January. Traditionally January isn’t a healthy month for employment figures so this performance is a lot better than expected, and that’s been a boost for both the dollar and the equities market. The Dow Jones index reversed its recent decline and gained more than 450 points through the week, although it did fall back slightly on Friday. With equities suddenly looking a lot healthier demand for gold can be expected to fade, and that seems to be just what happened last week.
It’s likely that some investors are also moving back into oil, which has been weak for a long time but now seems to be recovering. Last week saw crude prices, which have been ticking up slowly since the last week of January, rise a lot more strongly. WTI is now back above $50 a barrel and Brent was selling for $57.80 when the markets closed Friday. That’s still less than half what they were bringing last August but the specter of $20 oil seems to have gone for now, and the steady recovery will come as a huge relief for the US drilling industry. Most analysts agree that oil is likely to gain at least another 50 percent over the next couple of months and that makes it a very tempting investment compared to gold.
Despite last week’s setback the medium and long term prospects for gold still look good. The dollar price is artificially low thanks to the strength of the US currency, but relative to other major currencies gold is holding up. If the Eurozone doesn’t sort out its current mess the chances are the Euro will weaken further against the dollar and that should push gold higher again. There are also doubts about US sustainability; while job creation is up wages are static or edging slightly down, and a lot of the new jobs are part-time or zero hours contracts. Low inflation is also a worry that isn’t going away, with the rate still far below the Fed’s 2 percent target and not showing any signs of climbing. While investors are trying to cash in on stocks buoyed by the positive payroll figures there’s still an underlying nervousness in the markets and that’s going to turn attention back to gold sooner or later. There are no signals saying sell gold, so hang on to what you have and add more whenever the price drops. If it stays below $1,250 this week it’s irresistibly good value.
