March 7th Weekly Gold Market Update
Going into last week things looked cautiously optimistic for gold, and we’d expected to see the spot price continue to rise steadily, but unfortunately what actually happened was a dramatic turnaround. The price, opening at $1,214.30, eased downwards slowly and passed through the $1,200 mark, where many analysts had expected to see some support, on Wednesday. Then on Thursday the decline picked up speed, and when the New York markets opened Friday morning gold went into freefall for four hours. By early afternoon it stabilized and even managed to climb a few cents, but there’s no getting away from the fact this was a bad week for gold. The final closing price was $1,168.70, a loss of $45 over the previous Friday. It’s not quite as much as what we saw the first week in February but very close to it. For now any significant recovery for gold looks to be off the cards and the question is whether it can maintain its current level or if further falls are likely.
So what went wrong? Gold certainly wasn’t reacting to a rise in the equities markets, because the Dow Jones also fell heavily – in fact it ended the week at its lowest value since mid-February, 400 points down over the week. The FTSE 100 also dropped sharply at the beginning of the week, spiked to a new record high on Thursday then fell away again to close at 6,911.8, nearly 30 points below Monday’s opening.
There’s some good economic data hiding behind last week’s mixed stock market performance though. US job creation figures for the last six months were the best since March 2000, cutting the unemployment rate to 5.5 percent. Earnings growth was relatively slow but economists expect it to pick up soon, fueling inflation and bringing forward the prospect of an interest rate rise by the Federal Reserve. Overall it’s likely the economy will pick up more strongly than forecast over the next few months and that’s going to have a chilling effect on gold. The current price is lower than it should be but any corrections in the immediate future are likely to be modest. At the same time fluctuations in the currency market – with the dollar strengthening and the Euro’s value sliding – are likely to attract a lot of investment money in that direction.
There’s less competition from oil at the moment, with the recovery in crude prices still stalled. WTI is still selling for just below $50 a barrel and Brent seems stuck a fraction under $60. Traders can gain from just about any movement in prices but when they’re as static as this there isn’t a lot of potential.
So right now gold seems to be heading down again; the key question is what sort of trend is going to establish itself. Most investors are going to be reluctant to buy physical gold right now because of the risk of further losses, but if the price stabilizes close to where it is just now that’s an ideal launch point for a future rise – with a great chance to build stocks at a low price.
