March 1st Weekly Gold Market Update
Volatility looks to have returned to the gold market after a few weeks of an upward trend, and the previous couple of periods have seen the price slip back alarmingly. Last week investors were watching the market warily to see what would happen, with several analysts predicting a move out of gold if it continued to weaken. There was some good news, however, with an unspectacular but steady rise taking the cost of an ounce up $11.10 to close at $1,213.70. That’s less than half what it lost the week before but it is movement in the right direction, and hopefully is a signal that the rising trend has just paused rather than ended. This week’s performance will be a strong indicator of that and will be watched with interest.
One possible reason behind gold’s rise last week was a generally sluggish performance on the equities markets. While the FTSE 100 managed a 35-point rise to just under 6,950 points the Dow Jones struggled, climbing around 100 points initially then falling back almost to where it started the week. The German DAX climbed slightly on the news that a new bailout deal for Greece had been voted through the Berlin parliament but the lethargy in the Dow was the dominant influence in the stock markets, making gold look more attractive.
There wasn’t a lot of movement in the oil markets last week, with both West Texas Intermediate and Brent closing within a few cents of the previous period at $49.76 and $62.58 respectively. Oil prices appear to have stabilized again after a brief slip back, but there doesn’t seem to be any momentum behind a move to higher levels for the moment. Again that helps move investor interest towards gold.
So overall the market was well aligned for gold to go up. It’s possibly a warning sign that the price rose as modestly as it did – this recovery might not have a lot of underlying strength to prop it up. There aren’t any indications that things will be much different this week; the European markets are still volatile, and some of the noises coming from Athens suggest that the new Greek debt deal could be at risk before the ink has even dried, so we could easily see a downturn there. If that was matched by another slow week on the Dow Gold would get a much stronger upward push, perhaps enough to break it out through $1,250 again.
Longer term many market observers are predicting strong growth in gold and other commodities. Joe Foster from Van Eck believes that the US expansion is likely to slow over the next couple of years and Europe’s recovery will remain slow; in this environment, he says, gold is likely to rise slowly for the next year or so before picking up steam as production peaks around 2016. Closer ahead, if the Federal Reserve implements the long-delayed interest rate rise it’s been contemplating that’s likely to boost gold as well. There’s no reason for the price to fall substantially, so if you’re looking for a bargain right now is probably as cheap as it’s going to get.
