July 13th Weekly Gold Market Update
Following last week’s unsettled gold price it’s nice to see a better performance over the last period. From Monday’s opening price of $1,321 it dropped quickly to $1,316 then began a rally that carried it to a high of $1,338.70 on Thursday morning. Finally it closed the week at $1,337.00, a total gain of $16.60 on last week’s close. It’ll be interesting to see what happens now – will it fall back to sub-$1,325 values or continue to climb? A big decider there will be what the Federal Reserve does with US interest rates but the international situation is still having an effect, too – and so are renewed financial worries in Europe.
Banco Espirito Santo, Portugal’s second largest bank, has lost half its share value since May and is having trouble rolling over a large amount of potentially toxic debt. The knock-on effects are depressing share prices in Portugal and the uneasiness could spread further. Stock market jitters traditionally give the gold price a boost as people look for a safer home for their money, so until the Portuguese government gets a grip on what’s happening with B.E.S. there will be an upward pressure on commodities. At the same time US equities are still looking healthy and that’s been helping to keep any gains modest so far. The crisis in Iraq is dragging on, making oil look attractive, and Russia and Ukraine still haven’t sorted out their issues either. The developing crisis in Gaza is also worrying the Middle East markets.
At the technical level, the World Gold Council held a meeting on Monday to discuss reform or replacement of the London Gold Fix. This system hasn’t changed much since it was introduced in 1919 and while it gives a usable benchmark price twice a day the decision making process, involving just five major banks, doesn’t represent the more diverse modern gold market as accurately as it could. Gold Council director Natalie Dempster hopes that a new system based on executed trades can be put in place, maintaining the link with London’s huge gold market but pooling a lot more information than the current system does. More information means a price that more accurately reflects supply and demand. A revised gold pricing mechanism is likely to have some effect on price trends just by being introduced but none of the basic rules of the gold game are going to change much.
There was some excitement on Wednesday as rumors spread of a planned steep cut in India’s 10% duty on imported gold. Unfortunately the rumors aren’t true – the latest budget documents confirm the duty will be staying for the foreseeable future, so there’s not going to be a surge in demand for physical gold from India’s huge jewelry industry.
So what is likely to happen to the gold price over the next week? Barring any further issues that push the oil price even higher we expect to see a continued steady rise, perhaps not equaling this week’s. There are signs that oil is stabilizing with the price of OPEC crude within pennies of where it was a week ago, so gold is likely to get a boost from that.
