Gold News

Gold Market? Tumbleweed

If you liked $1300 gold, you gotta love it now...
 
VOLATILITY was long overdue in the gold market, writes Adrian Ash at BullionVault.
 
Tired of waiting, the hot money has now thrown in the towel...causing the very spike in price action it just gave up waiting for.
 
But this spike in volatility might prove just that, however – a spike.
 
Because the bullion market has sailed so far into the doldrums, it risks getting stuck there. And not just against the almighty Dollar.
 
Chart of Euro gold prices so far in 2018. Source: BullionVault
 
On our analysis, price swings in the Dollar gold price have grown as meek and mild as the mid-1990s. Matthew Turner at Macquarie says gold hasn't been this boring since prices were still pegged to $35 per ounce in the early 1970s.
 
Squint hard enough though, and gold's slow shuffle towards the half-way mark in 2018 does show two distinct phases.
 
First it jumped above $1300 and then held that level as a floor. Then gold cracked below $1300 as US bond prices fell and the yields they offer jumped in mid-May. $1300 has been a ceiling since then.
 
Higher rates make any zero-yielding asset tougher to hold, all other things equal. All things considered, gold also did well this week to creep back above $1300 as both the US Fed and European Central made noises about tightening policy, too.
 
But whether it's Iran, North Korea or Italy, this year's slew of geopolitical news has failed to shift gold prices higher.
 
Friday morning's volloy of shots in the US-China trade war then failed to boost gold again...
 
...and so those hedge funds betting that gold would go up finally quit.
 
Their push via the Comex futures and options market was clearly the only thing keeping gold at $1300 this week. Because now it's gone, the price has sunk $20 per ounce, and we're left facing a long summer ahead.
 
ETF demand has vanished. Retail investors remain AWOL. Asian buying won't return until jewelers start re-stocking for the Indian wedding season towards August.
 
Still, this drop should at least ease the selling pressure in the physical market. Price-wise traders are likely to buy the drop too, looking to take a profit when the metal next pops higher. On BullionVault today, one-third of Friday afternoon's buyers have sold higher up sometime in the last 7 days.
 
But the risk for short-term bulls is that the hot money turns tail and starts shorting gold instead of betting that it will rise.
 
Call it spite, if not idiot trend trading.
 
Longer-term investors might call it an opportunity.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

scri

Market Fundamentals