October 28th Weekly Gold Market Update

Gold seems to be holding steady at the moment, with no spectacular gains in the last week but no signs of its previous long slide resuming either. The week opened with a jump to a six-week high of $1,251.75, causing some excitement in the exchanges, before the spot price settled back to close the week at $1,231. That’s $7.90 down on the period before, disappointing but in the context of its recent performance not much to worry about yet. Overall we’d describe it as a mixed week and there are signs that the price wants to go higher. We’d have liked to have seen it close higher but we’re not worrying just yet.

It looks like, once again, the gold price has been responding to movement in the equities market. Monday’s rise paralleled the Dow Jones, but after a brief dip on Tuesday the Dow continued to climb strongly for the rest of the week, finally closing over 400 points up. That seems to have attracted money away from gold, so the demand that might otherwise have held the price up didn’t materialize. The FTSE 100 also climbed through the period, which would have further weakened demand for commodities.

Oil prices may also have played a part in keeping gold down. While the baseline oil price dipped slightly through the week Brent crude showed a small rise. In recent weeks we’ve seen this commodity lose over a quarter of its value, which among other things has blown a huge hole in an financial plans for an independent Scotland and may have contributed to the No vote in last month’s referendum. Any suggestion that Brent has stabilized and might be set to rise again is big news on the commodities market and could easily have attracted more investment that could otherwise have gone to precious metals.

Whatever happened with Brent this week we don’t think it signals an upturn in the oil market. New production technologies look set to revolutionize the petroleum sector and even Saudi Arabia seems to have abandoned their usual tactic of scaling back supply to keep prices up. Of course there are limits to how low oil can fall, as production costs are largely fixed; unless a producer actually wants to commit economic warfare that’s a hard floor, and demand for oil is quite inelastic. While a rise in Brent might add some short-term pressure to gold it’s not likely that will last.

What’s more pressing is the stock market. A sustained rise in share prices could halt gold’s fledgling recovery and drive prices back below $1,200. Whether or not that happens is going to be determined by upcoming economic data, with retain performance over the holiday season being a major factor that should come into play soon. In the short term there’s no real reason for a sustained rise in equities. The Dow did rise last week but it was far from energetic, so there’s a strong possibility it could stagnate again soon. If it does that will leave gold free to rise. For now gold is still very attractively priced and looks set to rise, so it’s a good time to buy.

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