November 4th Weekly Gold Market Update
So after a brief recovery then two weeks stalled and not really going anywhere, gold seems to be headed down again. After a brief spurt of interest when the markets opened on Monday the spot price headed south for the rest of the week, closing all the way down at $1,164.25. That’s a loss of $66.75 – more than 5 percent – in just a week, and takes gold down to a new four-year low. After the initial climb in mid-October tailed off we’ve been cautiously optimistic at best, but this rapid drop is still a surprise.
Looking around at the rest of the market, we can see why gold has slumped again. Equities have had a good week across the board; the Dow Jones Industrial Average climbed steadily all week apart from a minor blip on Wednesday, picking up more than 500 points. In Europe the FTSE 100 also performed well. We’ve seen plenty of hesitation and reversals in the stock market recently but last week showed signs of returning confidence, and that’s likely to have given a lot of investors the courage to pull out of safe havens like gold and try their chances with shares.
Other commodities may also be having an impact. Crude oil continues to fall but the benchmark Brent crude looks like it could be stabilizing after falling by more than a quarter over the past couple of months. In the medium and long term oil prices are unlikely to recover to previous levels, as increasing shale oil production and US energy self-sufficiency erode the power of the Middle Eastern producers, but even stable prices are going to attract many investors when demand is so solidly guaranteed. Brent and its companion West Texas Intermediate are strongly placed to benefit, as their high quality makes them difficult to replace through alternative extraction processes.
So the question, as always, is where gold is likely to go over the next week. Right now it seems any support building above $1,200 has evaporated, leaving the price free to fall again. At this rate a five-year low around the $1,100 mark isn’t out of the question and any recovery is going to depend on what happens to equities. Going by the main indexes buyers seem happy enough with them right now but there are still serious questions about the underlying health of the economy. The bullish mood among investors isn’t shared by most of the public, many of whom are concerned about shrinking disposable income and job insecurity. That’s not helped by the fact that many of the new jobs created this year are part time or lack secure contracts, so willingness to spend isn’t high. That inevitably will have an impact on shares unless the recovery firms up, so there’s potential for a slowdown as holiday season retail figures start to appear. If that’s the case we’d expect a strong move to gold. Right now it might be sensible to put off buying, but if the price breaks below $1,125 that’s a signal to stock up as much as possible and wait for it to rise again.
