Gold an immediate beneficiary should bear market in equities become reality

New York closed Monday with the gold price at $$1,162.40 up from $1,157.30. In Asia this morning gold fell back to $1,156 ahead of London’s opening. The gold price was set at $1,154.40 down from $1,164.20 at the LBMA gold setting. The dollar Index was almost unchanged at 94.76 from 94.72 and the dollar was trading against the euro at $1.1390 down from $1.1379. In the euro the fixing was €1,013.35 down from €1,023.11.  Ahead of New York’s opening gold was trading at $1,154.65 and in the euro at €1,013.74, and subsequently moved up $10 or so after New York trading came in.  

The silver price closed at $15.85 up 1 cent over Friday’s close. Ahead of New York’s opening, silver was trading at $15.67.

Price Drivers

Gold broke above $1,160 hitting over $1,170 at one point. We are seeing the gold price consolidating around that level now but psychologically the gold market has now changed. While there were no sales or purchases of gold into or from the SPDR gold ETF or the Gold Trust the gold price appears to be on the attack not the defense. The holdings of the SPDR gold ETF remain at 687.196 tonnes and 160.62 tonnes in the Gold Trust.

Today, we continue to watch to see if there is follow-through to take it higher. We do not expect a fall of significance in the gold price from here.

We believe the change of mood in the market is still due to the impact of a slowing global economy, which will impact the exchange rate of the U.S. dollar. With U.S. monetary authorities holding the dollar’s exchange rate down to current levels, the gold price will move against all global currencies and not just in the opposite direction to the dollar. We may be watching this as a structural change in gold’s performance.

With New York dominating the gold price, a perception that a recession is on the horizon within the next three years is fuelling the probability of an equity market fall. With Price/Earnings ratios at extremely high levels now in New York, any rate hike at all will frighten such investors. We have no doubt that with the U.S. investor is largely out of the gold market, so not in a position to sell gold to cover margin calls. Hence, the attraction of gold will be immediate, should a bear market in equities [and bonds] become a reality.  At that time, we believe that bullion prices will outperform shares in gold mining or silver mining companies, at least initially.  Financial markets have set a pattern of discounting such events well in advance. This is an additional worry for global financial market investors.

Silver will continue volatile against the gold price both ways. This is consistent with its historic performance.

Julian D.W. Phillips for the Gold & Silver Forecasters – and

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