October 14th Weekly Gold Market Update
Last month’s experiences show why it’s never a good idea to confidently announce the end of a trend, but while we’re not going to say gold’s long decline is over the spot price has definitely made up a lot of what it lost over the past few weeks. Gold was heading up when the markets closed the period before, and we were watching to see if that immediately reversed again on Monday. It didn’t, and on Tuesday the spot price suddenly jumped – right back up through the $1,200 line and on towards $1,225. It didn’t quite manage to stay above there, with Thursday and Friday seeing things flatten out again, but when trading finished on Friday gold was sitting at $1,223. That’s a rise of $32.30 over the previous Friday’s alarming low, and right now things are looking good for it to hold or improve on that price over the next week.
Looking at overall market conditions it’s not hard to see what happened. The Dow Jones and FTSE 100 both opened the week looking unsteady, with the Dow falling sharply on Monday. It gained recovered pretty much all its losses on Tuesday, but it seems that the recent ups and downs finally spooked investors too much and they decided to look for something safer. Gold is usually the haven of first resort for cautious investors and at last week’s bargain price it was obviously attractive enough for a movement to get started. That just kept going when the Down’s fall resumed on Thursday and continued the rest of the week. Meanwhile in London the FTSE just fell steadily and unspectacularly, which can only have reinforced the move away from equities.
Asian stocks also had a bad week and these traditionally gold-friendly markets helped the rally. Further assistance came from the continuing slump in oil, with Brent crude close to a four-year low. It looks like everything came together to nudge gold upwards, and predictably it responded. The hope now is that a healthy week will start to rebuild both confidence in gold as a commodity, and support at $1,225 or higher.
The main driver behind the stall in equities seems to be worries about over-valuation. The Federal Reserve has downgraded its ratings for both Germany and Japan, and the Fed’s vice chairman has admitted concerns about global growth. Analysts seem to lack confidence in the economic recovery for the fourth quarter and the beginning of next year, and all that’s reducing the attractiveness of stocks. The big one to watch now is the holiday season retail figures; a good Christmas could boost many stocks, but again that’s a confidence thing – worried consumers means lower holiday spending. A lot of investors might prefer to keep their money in gold while they wait to see which way it’s going to go.
As for where gold itself is going, while we’re not going to be rash enough to say it’s bottomed out we do think it should continue to rise as long as equities remain uncertain. Look for $1,250 or higher by the end of this week, and if you don’t already have a gold position buy in now while prices are still low.
