October 21st Weekly Gold Market Update

There were a lot of eyes on gold last week as the markets wondered if it would continue the rally it showed the period before. For metal investors the news turned out to be fairly positive, as the spot price trended upwards despite an initial drop when the markets opened Monday then another slight fall on Thursday and Friday. The final performance was far from spectacular but by the time trading closed on Friday gold was selling for $1,238.90 per ounce, a weekly gain of $15.90. That’s a rise of 1.3 percent, which is healthy enough, and close to $50 clear of the low gold reached in the first week of October.

Looking at performance in the equities market the movements in the gold price make perfect sense. The Dow Jones Industrial Average started the week stable, probably prompting gold’s initial fall as investors hoped for a rally in stocks. When the Dow began to fall again on Tuesday that started a renewed movement towards safety, and finally Friday’s upswing levelled off gold’s rise. The Dow actually closed higher than the previous week, which could cool down the move to gold, but that’s not guaranteed. The FTSE 100 also had its ups and downs, and Friday’s regain wasn’t enough to leave it up overall. Equities are sending very mixed signals right now and that adds to the appeal of gold. Some are going to see unstable equities as a risky but promising opportunity to make some fast gains, but from the point of view of investors uncertainty isn’t much better than a fall. That means unless share prices resume the upward trajectory we saw in the summer gold’s performance is likely to stay good for a while longer.

Recent market events suggest that equities could be close to, or already at, a short to medium term peak. The price of Brent crude has fallen by 25 percent in recent weeks; the overall drop in crude prices is widely assessed to be a result of the USA’s expansion of shale oil production, but Brent – and West Texas Intermediate, which is also down – is a special case. A drop this sharp signals stresses in the economy and a serious risk of a slowdown, and if that happens the long-term prospects for gold will be looking healthy.

Obviously there are no guarantees here, and if investors regain confidence in equities we could see gold trending down again. However right now it doesn’t look likely to fall as low as it did earlier this month, and the odds are that some solid support is starting to form above the $1,200 point. Barring any major shakeups we don’t expect to see it back below that.

Right now gold is still very, very cheap. We think it’s going to rise over the next few weeks, with the only real question being “how much?” That seems to depend mostly on where equities go, but with the spot price still down in bargain territory this is looking like a good time to buy. The odds are you’ll be able to sell again at a profit by the end of the year.

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