Recent optimism about gold suffered a major disappointment last week. The spot price, after climbing for much of the week before, suddenly dropped abruptly in weekend trading. That decline carried on when the main markets opened Monday, with the price already down $15, and only started to slow towards the end of the week. Final trades on Friday went through at $1,174.20, a fall of $26.10 from the previous close. That takes gold right back to where it was at the start of the month, not a good result at all.
So what caused this sudden plunge? It certainly wasn’t a healthy US equities market. The Dow Jones rose slightly on Monday but then nosed over into a decline at least as steep as gold’s. It did start to recover slightly on Friday but still finished the week more than 170 points below where it started on Monday. The picture in the Far East was similar, with the Shanghai Composite Index registering its biggest fall in eight years. Technology shares were the worst hit, reflecting declining export performance in the consumer electronics sector. Many China experts are advising against buying on this dip, believing the Chinese markets have peaked for at least the medium term. Morgan Stanley are advising investors not to buy mainland Chinese shares. That should boost gold sales in the region but so far doesn’t seem to have.
Things are different in the UK, where the FTSE 100 came close to its 5-year high last Wednesday before dropping back slightly. French and German markets, plus the EU STOXX index, also rose early in the week then settled comfortably above Monday’s values. It looks likely that the prospect of a Greek debt deal, which looked good on Tuesday, raised expectations of a weaker Euro in future leading to higher exports. However talks have now stalled and unless the Athens government makes a major change of position in the next four days the country is likely to be ejected from the single currency. That could prompt a surge in the Euro, good news for struggling US exporters but bad for Eurozone ones.
Meanwhile oil prices continued a slow decline. WTI fell 21 cents to close at $59.70 while Brent is down a similar amount at $63.20. Again there’s not enough movement in this sector to draw investors away from gold.
It’s extremely hard to make predictions with the markets as confused as they are at the moment. The falls in the Dow and SCI should have been enough to boost demand for gold and send the spot price up, but that didn’t happen. It’s possible the currency market is picking up the extra funds; the Euro fell sharply against the dollar on Monday then stayed around $1.117 for the rest of the week – over 1.5 percent down on the week before. There are attractive profits to be made if Greece exits; cheap Euros bought now would buy a lot more dollars next month. At the same time a rising Euro would help gold as US equities lost value. A lot probably hangs on this week, so we’ll have to wait and see.
- Gold Market Update 6-20-2015
- Gold Market Update 7-4-2015