July 4th Weekly Gold Market Update
It’s been a confused week for gold, with the market swinging up and down on a daily basis but finally closing within a couple of dollars of last week’s price. From a close of $1,319 per ounce last Friday it reached a high of $1,330 before falling back to around the $1,320 mark, where it ended the period with a closing price of $1,320.40. A week like this can be confusing for investors – has the market peaked, indicating that you should sell now, or is the spot price poised to take off and head for $1,400 in the near future?
Most of the uncertainty in the gold market springs from the same causes as last week. Political uncertainty in the Middle East always has a disruptive effect on markets as oil gets the jitters, and there’s no sign of an end to the ISIS insurgency in Iraq. Indeed the jihadis seem to be settling in to the areas of the country they control, with this week’s announcement of a new caliphate, and so far there’s no sign of (or appetite for) international intervention to stabilize the situation. As long as civil war in Iraq threatens the world’s second largest oil reserves economic turbulence can be expected. The prospect of a sharp rise in oil prices can depress other commodities as investors looking for a quick gain switch to petroleum.
Further upward pressure on oil can be expected from Ukraine, where the Kiev government is escalating military action against pro-Russian rebels in the east of the country. With Russia threatening intervention in support of the rebels that raises the possibility of further sanctions, and while Russia has smaller oil reserves than Iraq it’s the world’s largest producer and exporter.
Overall the US economy continues to recover slowly. That should reduce gold’s attractiveness as a hedge but recent poor growth figures have damaged confidence, so while equities remain stronger than expected this is a trend that can’t be relied on. We suspect it’s this underlying uncertainty that’s held gold at its current level. Wednesday’s release of nonfarm payroll numbers doesn’t seem to have done much to clarify the situation; the gold spot price shot up to $1,330 on Tuesday before falling back, and on Wednesday it sagged initially then rallied before returning to the $1,320 region where it’s stubbornly stayed ever since.
Overall it’s hard to draw too many conclusions from the week’s trading but if there is a trend there it’s a quietly confident one. Gold has proved resilient in a confusing period, leaving us optimistic for the medium to long term. Right now look at buying any time the spot price dips below $1,320 – we don’t think it’s going to be in that territory for very long. Barring an unexpected surge in the economy or a radical change in the international situation gold is strongly placed to rise considerably over the next few months and this looks like being a good time to add to your holdings before the price starts to rise.
