Weekly markets round-up for StoneX Bullion

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.

After the lively price action in the first few days of January, gold and silver have been much quieter this past week, with all the action in the precious sector concentrated on palladium, which is almost off the scale, rising from just under $1,950 at the start of the year to test $2,500 at the end of last week in very tight conditions, reflecting the market’s deep deficits and relentless industrial demand. There are inventories in the palladium market, but they are in firm hands and when they do appear, they are swiftly sucked into industrial entities as automotive emissions limits tighten around the world. The main buyers are in China, where the next set of tighter limits come into place in 2023 and will cut the current limits for the different exhaust gases by between 30% and 50% dependent on each individual gas.

In the gold and silver markets, meanwhile, the overall tone has been encouraging for the bulls. This is not because of what has happened to the price, but it is because of what has not happened. Last week we looked at how gold had given back its gains as the tensions in the Middle East unwound to a degree (but they have not gone away). This week, with no fresh escalation, and with the signing of Phase One of the trade agreement between the United States and China, it might have been expected that gold, and by association silver, should have retreated further. They have not; gold found support at just below $1,540 early last week and has worked very gradually higher, edging towards $1,560. Silver has tracked gold, rising from $17.70 to reach $18.10 before easing very marginally.

This points to an innate resilience in the markets at present; although the dollar did ease over much of the week, the range was narrow and it then strengthened towards the week’s end to reach the highest level since 26th December and threatening to break out of its four-month downtrend.

Background supportive elements for gold came from the United States with President Trump nominating dovish candidates to the vacant positions on the Board of Federal Reserve. Whether these nominations would succeed in implementing a further reduction in interest rates must be debatable, though, as the Fed has steered a successful course with its management of the economy thus far and Chairman Jerome Powell has clearly demonstrated by the Fed’s actions that it is not amenable to political pressure (the President has been arguing fiercely for lower interest rates). The nominations now go to the Senate for consideration. Also, in front of Senate this week, of course, is the impeachment trial proceedings; this is absorbing the focus of the nation although it is widely believed that he will not be removed from office.

Next week sees the start of the Chinese New Year celebrations (the New Year starts on 24th January; this will be the Year of the Rat, which is supposed to denote prosperity). China announced last week that its GDP growth rate for 2019 was 6.1%; this is the lowest since 1991, but there are signs of stabilisation with an improved performance in the fourth quarter of the year. China’s physical gold market has been very sluggish over the past six months, reflecting higher prices and economic uncertainty. Ordinarily a bull market will attract Asian buyers in the expectation of further price increases but this time, along with much of the rest of Asia, Chinese buyers have remained firmly on the side-lines and any disposable income expenditure has been directed elsewhere. Activity should pick up ahead of het New Year so this week will be instructive.

Thought for the week

China is the world’s largest consumer of gold, and over the past five year ahs accounted for 36% of world gold jewellery demand

Chart for the week

Gold and silver in euro terms