September 16th Weekly Gold Market Update
Anyone hoping the gold price was going to recover this week – and yes, that includes us – was in for a big disappointment, sadly. Not only did gold fail to build new support at the $1,250 level as we’d hoped it would, it crashed right through that figure on Wednesday and kept on falling the rest of the week. Apart from a small and short-lived uptick on Tuesday the trend was relentless – gold just fell. By the time the markets closed on Friday the price was all the way down to $1,228.30, a whole $40.10 below the previous period. In fact gold is now trading at prices it hasn’t touched since January, as it recovered from the brief dip at the close of 2013.
So what’s going on? Gold’s seemingly incurable weakness certainly isn’t down to a sudden surge in the equities market. The Dow Jones Industrial Average is also down after last week, seeing a drop of 114 points to 16,987.51 over the period. In the UK the FTSE 100 dropped 49 points to close at 6,806.96. Usually we expect to see metals go up as stocks go down, and vice versa, but that’s not what happened last week. Instead we saw sustained falls in both gold and equities, with only the FTSE showing any signs of turning up towards the end of the period. It’s sort of a perfect storm of lost value.
The money doesn’t look to have moved into other commodities either. The crude oil price was more or less flat all week, with a slight dip on Tuesday followed by recovery on Wednesday; Brent crude followed a similar pattern but Tuesday’s dip was a lot sharper and the recovery not so complete. The end result was standard crude down very slightly over the week at $92.27 but Brent losing a lot more to close at $97.11.
The worse performance of Brent oil might offer a clue as to what went on last week. The big news shock in the UK was an opinion poll showing a narrow lead for the separatist side in the Scottish independence referendum, and that prompted a run on Sterling. That poll came out on Tuesday, coinciding with the hit on oil as well as sharper falls on gold and equities. It also depressed treasury bonds in other countries, like Spain, that have independence movements of their own. The next poll, on Wednesday, showed the unionists back in the lead and Sterling regained most of the value it had lost. Still, the polls have never been so close before and that’s leading to uncertainty in the markets. Scottish separation could have a big impact on both the UK economy and commodity prices, and it’s possible that uncertainty persuaded investors to hang on to their money for the moment.
The big question, as always, is what gold is going to do next. At this point we really can’t say. One thing we are sure of is that there’s no reason for it to fall much further and we expect to see a recovery before too long has passed. If we’re right then this is a great time to buy – these bargain prices are pretty much irresistible.
