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.

Gold is trading intra-day at $1,961/ounce at time of writing, a gain of almost 4% over the week. This is not just dollar impact; prices in local currencies are up also.

We (and several others) have been arguing that the outcome of the U.S. election would be bullish for gold regardless of who won the election as the dollar could be expected to weaken with fresh economic stimulus forthcoming. We have also noted that the make-up of the Senate would be key, and we may well not know the result of the latter until January. The likelihood is that the Republicans will continue to hold the Senate, and this would almost certainly mean that there will be yet more wrangling over the level of stimulus that is approved.

This can be argued either way as far as the medium-term outlook for the gold price is concerned. One the one hand a constrained stimulus programme slows down the pace of economic recovery and delays inflationary expectations; essentially neutral for gold. On the other hand, it feeds into economic and geopolitical uncertainty; essentially bullish. For the longer term, once the virus has been brought under control and consumer confidence starts to return then there is a risk of an inflationary pull (albeit from non-existent levels at present), as most of the stimulus funding that has made it through to the private consumer has not yet been spent as people are preferring to save in times of uncertainty. This points to the unleashing of pent-up demand as and when the situation starts to return to normal.

When this happens the balance in the gold market will change again. As private consumers come back into the market then, for the same reasons (return of confidence), money managers are likely to be bailing out and it is possible to see a repeat of the patterns of 2013 when western investors were selling gold ETFs and all that gold went into the Far East, almost exclusively China.

So, in summary: - short term bullish, medium-term neutral to bullish, longer term (all other things being equal) a reversal.

So, we have seen a 5% rise in the dollar gold price since 29th October in anticipation of, and then a reaction to, the election result. In euro terms the gain is just over 3% while in rupees, with the Diwali Festival approaching next weekend, the gain has been just over 4%, which may stiffly the gradual recovery in interest. That said, Diwali is the most auspicious day in the Hindu calendar for gold gifting and after last year’s weak activity there is improved interest this year – although the price rise at the end of last week has stifled it to a degree.

Meanwhile last week saw one day of net redemptions for the gold ETFs, but over the week the net increase in holdings was 6.6t for a net dollar inflow of $415M, with a hefty surge post-election. Whether this momentum can be sustained is debatable, but sentiment is positive. Looking back to the Managed Money positions on COMEX, the week to close of business last Tuesday, which was of course Election Day, actually saw some long-side profit taking and the implementation of fresh shorts, taking the net long down from 317t to 282t, competed with a year-to-date average of 426t and an average post the March-sell-off of 366t.

Gold in dollar, euro and rupee terms

Gold, silver and the ratio