Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
The general air of improvement, or at least some mild optimism, about both the U.S.-China trade talks and the Brexit negotiations, took some of the froth off the gold price last week, although the weaker dollar towards the end of the week contained some of the slide. The longer-term sentiment in the market remains supportive in response to geopolitical tensions but in the short term gold is still a range-trading market and expected to stay that way as eyes turn to European negotiations on the political side (potentially bearish) and the problems in Syria (potentially bullish in theory but it does not always work out like that).
We are still picking up evidence of increased pockets of bargain hunting in some of the price elastic regions. It is important to bear in mind that gold is a different animal from virtually all other hard commodities. In most cases strong demand and/or tightness in the market will help to boost outright prices or at the very least tighten the forward curve (palladium is a very good case in point here, as is nickel, reflecting market reaction to Indonesian export suspension). Gold, however, is different in that there is such a huge amount of “professional” or currency-related flows through the system and underlying grass roots demand is a small, albeit important component of the market. Generally speaking strong demand will help to contain price weakness, or provide underlying support but it is rarely enough to push prices higher on its own.
Equally the dearth of physical demand in the market over three months or so is a reflection largely of high prices; this not only renders the metal hard to afford, but raises concerns that it may not have much further upside and therefore potential buyers will stand back and wait for retracements. This is exactly what we have been seeing recently as the “hot money” in the markets has kept prices buoyed and local buyers have withdrawn. Only now is the physical market somewhat resignedly getting used to the new higher range.
Thought for the week
If one is buying gold in order to mitigate risk the price paid is irrelevant as it is portfolio stability that drives the decision