January 25th Weekly Gold Market Update
Last week wasn’t as impressive for gold as the two before had been but the spot price is still heading firmly in the right direction. After staying fairly static over the weekend’s trading gold headed up again when the main markets opened on Monday and kept it up for most of the week, reaching a high of $1,302.10 on Thursday. It fell back a little on Friday to close the week at $1,294.10, $13.80 up on the previous period – a gain of just over 1 percent. As we said that’s not impressive but any rise is better than a fall.
The smart money says that gold was pushed up last week by weak prices in the stock markets. While the FTSE 100 managed to rise steadily the Dow Jones looked much shakier, stagnating or falling for most of the week and finishing almost 400 points down. There have been quite a few tremors in the Dow recently but while this was far from the deepest dip it was certainly the most sustained, and the previous ones have shown a pattern of a sharp fall then an immediate, just as rapid, recovery. This time it fell, tried to rise, fell back again and struggled on sluggishly for the rest of the week. Thursday saw a partial recovery but the index fell away again next day to end the week heading down again. This is bound to cause some anxiety among investors and get a few of them thinking about the long-term security of gold.
It’s now looking more likely that crude oil prices have bottomed out; WTI was slightly down last week, closing at $45.59, but Brent actually managed to rise a few cents to $48.79 and neither is plummeting like they have been for so long. Unless Saudi Arabia takes steps to push the price down further – unlikely, given the pain the crash is causing many members plus the death last week of Saudi Arabia’s ailing king – it’s likely we’ll see a slow recovery over the next few weeks. That’s going to make petroleum more attractive for a while, possibly at the expense of other commodities, but it’s also going to have a cooling effect on economic growth – and that’s good for gold.
Because gold peaked on Thursday then fell back some analysts are predicting that it’s risen too fast and is likely to settle slightly below where it is now. We’re not convinced by that. There now seems to be support no lower than $1,250 and probably closer to $1,275, so there’s not much potential for a real fall as things stand, and no reason for it anyway. The Dow Jones will probably recover slightly next week but we don’t think its steady climb has much longer to run. Last week’s announcement of quantitative easing in the Eurozone has knocked close to 5 percent off the Euro’s value relative to the dollar, denting spending power in one of the USA’s biggest export markets. That has to have an effect on equity values, so expect a period of reduced growth and quite likely a modest boost for gold.
