Last week saw yet another disappointing slide in gold prices despite things initially looking quite good. A slow but steady gain Monday and Tuesday raised hopes that the rising trend towards the end of the previous period would continue all week but shortly after the European markets opened on Wednesday it began to fall again. The decline slowed a fraction late in the week but never turned around. By the end of Friday the spot price stood at $1,172.30, a loss for the week of $17.70. It’s not a collapse by any standard but moderate losses three weeks in a row does make a worrying trend.
Yet again the equities markets don’t hold the key to what happened with the gold price. Both the Dow Jones and FTSE 100 rose slightly on Monday before falling back to finish well below their starting values – in fact the FTSE saw its worst weekly numbers in six months. The best guess is that investors were distracted by the currency markets, where the Euro has been showing more signs of movement against the dollar. That movement has been in both directions, too, which tends to encourage lively trading.
As ever the main driver for Euro movements is the seemingly endless Greek crisis, with any hope of a resolution now pushed back to the end of this month; instead of making three separate payments to the IMF Athens now says it will pay them all together on June 30. That’s not a positive sign for the Euro; the last country to “bundle” repayments like this was Zambia in the 1980s and if a major European economy is in the same boat a Grexit seems inevitable. That’s almost certain to boost the single currency in the short term, which would be good news for struggling US exporters, but in the long run could open up more cracks – Italy, Portugal and even Spain could start to slip towards exit as well.
Meanwhile crude oil prices remain soft, with WTI trading at just above $59 on Friday and Brent only around $4 higher. With weekly movements in the order of a few cents a barrel there’s no real draw there.
One issue to keep an eye on in the future is the climate, with El Nino weather conditions starting to make themselves felt. Last time that happened it had a serious impact on the US agriculture sector and with California already in a severe drought there’s potential for even more damage this time. El Nino probably isn’t enough to drag equities into a downward trend on its own but it can certainly reduce growth enough to make gold look more attractive, so there’s definite potential for future growth there.
So overall, despite last week’s fall, it still isn’t bad enough to seriously worry most analysts. We should be seeing the Q2 growth figures in a few weeks and if they’re not a lot better than the Q1 numbers, especially exports, that’s going to pull equities lower. Hanging on to your gold right now will leave you better placed to profit from that, unless it’s a stock you bought at a much lower price.
- May 31st Weekly Gold Market Update
- Gold Market Update 6-13-2015