January 4th Weekly Gold Market Update
Gold didn’t really go anywhere the last full week of 2014, and last week – with the markets shut down for New Year – was always going to have a degree of uncertainty about it. What we actually saw was a low start following the now-familiar weekend losses, a spike on Tuesday that took the spot price up to $1,200 briefly then a slide back that lasted through the New Year break. Friday’s trading reversed that trend with a steady climb up to $1,189.80, and while that’s $6.05 down on the previous period’s close it isn’t a significant drop. It also adds to the perception that there’s some support not far below $1,200, which is an encouraging sign.
While we don’t want to do too much analysis on a short trading week it doesn’t look like the equities market was doing much to force gold down through the week. The Dow Jones index fell by just over 200 points from Monday to Wednesday, before easing upwards a fraction on Friday. The FTSE 100 also dropped by around 80 points to close at 6,547.
One point that needs to be remembered is that while the gold price is flat in dollar terms it’s actually rising against most other currencies. It’s traded worldwide and while the US markets are the largest a lot of the demand is coming from Europe and the Far East. That means the value of gold is rising strongly in sterling and, especially, in Euros and Yen. The dollar has gained more than 5 percent against the Euro in the last few weeks and for every investor in the Eurozone gold has done the same. That raises the question of how strong gold’s performance has actually been recently, and its underlying strength could be a lot better than the dollar price suggests.
A factor that could cause real damage to the gold price is any selloff of Russia’s large reserves, and a couple of weeks ago that looked like a serious possibility as the rouble collapsed against the dollar. Moscow seems to have stabilized their currency for now, though, and the chances of them being forced to dump gold have receded. A major selloff would blow right through any support that’s formed, so while a stronger rouble might not suit the ambition of punishing Vladimir Putin it’s good news for gold investors.
Right now the strength of the dollar and the continued low rate of inflation are the main issues the Federal Reserve is worried about right now, so it’s likely they’ll continue holding interest rates down for the moment. That’s good news for businesses and will probably keep the stock market rising, which in turn will put a brake on the gold price – in dollars, at least. If the Fed succeeds in bringing the dollar down to help US exporters that could make a big difference though. Continued international demand would probably see a sharp rise as gold breaks away from a falling dollar, and with oil prices still seemingly in freefall we’d say it#s as good an investment as ever.
