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.
Generally speaking, and with all other things being equal, gold and the dollar move in opposite directions from one another, not just because gold is dollar-denominated, but because the two of them frequently take turns in acting as an asset of last resort in times of stress, which means that they would strengthen together.
This time we have them both weakening together, which is unusual. The primary forces behind the continued easing in the dollar is the outcome of the election – which, to be fair, was expected to be bearish for the dollar regardless of the result, with Donald Trump favouring dollar weakness in order to maintain international competitiveness in the markets, and the markets themselves expecting a more expansionary policy from President-Elect Biden.
The latter, of course, is likely to be at least partially subject to the make-up of the Senate and we won’t know until 5th or 6th January, after the Georgia run-off, whether the Senate remains Republican controlled or not. If it does, then we will have more wrangling over the level of stimulus to be injected into the system, but the nomination of Janet Yellen as Treasury Secretary should strengthen Mr Biden’s hand in this respect. She is an advocate for fiscal stimulus, is moderately dovish, was the Chairman of the Federal Reserve from 2014-2018 with Jay Powell as her lieutenant; all in all, this looks like a very shrewd nomination.
Meanwhile gold has been subject to profit taking and, with the speed of some of the moves last week, no doubt stops will have been triggered and momentum traders will have got involved also. Crossing below the 200-Day moving average on Friday would have triggered some further selling, but the markets would have been thin on Friday in the wake of Thanksgiving in the United States.
The slippage is another wave of selling on the expectation up to three vaccines could be in circulation relatively soon – one quite possibly in the second week of December, allied to the generally bullish sentiment over the commemorative resilience of the Chinese economy. To some extent this may be over-enthusiastic since Europe and others continue to struggle and Chinese terms of trade may suffer as a result. It may be instructive in this regard that silver has chosen to trade alongside gold, rather than building on the mild euphoria in the base metals sector, although the speed of gold’ s move does suggest that silver would be carried with gold rather than its industrial peers.
Continued redemption in the gold Exchange Traded Products has now seen a reduction of 86t in November so far, for a net dollar outflow of $5.1Bn and a drop of 3%. Silver ETPs, however have declined by 5% over the same period. This is also unusual as silver holdings, which have a higher retail component than gold, tend to be more “sticky”; these sales may reflect some institutional rebalancing, but possibly also some profit taking or stale bull liquidation in the retail sector.
This is not to say that the bull market has completely broken down and it may well be that, as the base metals have possibly overshot to the upside, gold has overshot to the downside. Physical demand is starting to pick up in some of the price-elastic regions, and once the price has stabilised for a period we could well expect to see some positions being re-established, given that there is more fiscal stimulus to come, on both sides of the Atlantic, real rates remain negative, and increased tension between the United States and China could well make things difficult for the new U.S. Administration in the international arena.