October 7th Weekly Gold Market Update
There’s still no sign of a recovery in the gold market based on last week’s performance, and after last week’s small upswing the spot price seems to have resumed its fall. Gold fell as soon as the markets opened on Monday, hitting $1,208.50 before climbing back to the $1,215 level. That lasted until the US markets opened on Friday morning, when it abruptly fell and bottomed out, to close at $1,190.70. That’s $28.90 down on the previous period and seems to blow away the idea that any support would form above the $1,200 point.
It’s likely that Friday’s fall was caused by activity on the stock market. The Dow Jones Industrial Average didn’t have a great week, with a sharp fall on Tuesday coinciding with – and probably causing – the rise in gold prices. It’s likely that with equities suddenly dropping investors took advantage of low prices to move money into gold. However after staying down for a couple of days the Dow climbed strongly on Friday morning, making up almost all the ground it had lost through the week. That seems to have drawn money back in and caused a rush to sell gold, pushing the price back down – and once it started moving it just kept going.
What this does mean is that the link between equities and gold prices, which has looked more than a bit shaky for much of this year, seems to have been re-established. If equities rise we should expect to see gold fall. That could mean that prices stay low – although probably not as low as right now – for the short term, as the latest economic news seems fairly positive. The latest monthly figures from the Bureau of Labor Statistics put the unemployment rate at 5.9 percent, much better than expected and a reflection of the 248,000 new jobs created in September. That sort of data is likely to boost confidence in the stock market.
On the other hand there’s continued concern that the recovery isn’t as robust as it could be, underlined by growth figures that, for the year as a whole, are pretty weak. Even the employment figures are hotly debated, with some analysts concerned that many of the new jobs are part-time and aren’t going to deliver as much of an increase in spending power – and therefore growth – as the raw numbers suggest. If that turns out to be the case and growth remains poor expect to see stocks falter again, and that looks certain to push gold back up.
For now, gold isn’t all that far from a five-year low and there just doesn’t seem to be much room for it to drop much further. We still think it’s well underpriced where it is, especially with the conditions across the rest of the market, and a return of confidence should see it bob up again. We certainly don’t recommend selling at the current prices, and if you can pick up some more at below $1,200 that could turn out to be a major bargain.
