Gold and Silver Showing Resiliency
We posted an article about the recent volatility in the financial markets and Gold’s resiliency is worth some additional comment. While Gold has drifted a bit lower since Monday, the safety trade could be one of the reasons we see a continued strength relative to other financial assets.
The financial headlines are suggesting that weaker global growth could be the trend moving into 2015. Japan’s economy is weakening; German industrial production numbers are slowing; Australia, which is a resource rich country, is feeling the pinch from lower commodity prices; Greece is back in the news, dealing with a potential political crisis.
The other unsettling news is the drop in stock prices out of China on Monday. All of this points to a continuation of lower than normal interest rates to enable market participates and Governments access to cheap money.
The result is that the Gold trade will likely come back to life regardless of whether inflation or deflation emerges as the dominate theme. Gold’s recent resiliency is the result of investors seeking safety. The trend could be shifting for Gold, even through short term price volatility is inevitable.
The Oil and Currency Impact
The argument for higher to stable Gold prices are in the oil and currency markets. The major headlines have been dominated by the collapse in oil prices. The initial view of this was positive as consumers pay less at the pump with a drop in oil prices.
However, because of how steep and swift the decline has been, what was seen as positive is now becoming a real concern. Oil prices could be signaling that some real challenges are ahead for the world economy.
Many analyst have been bearish on Gold because of lower commodity prices and a strong dollar. However, the fact that Gold is holding its own in the face of a crashing oil market is a positive sign for the metal. Something is not quite right with the economy and Gold is being sought out, as risk assets are off the table right now.
Another trend that could be developing is Gold decoupling from the US Dollar. Dollar strength as we move into 2015 does not necessarily mean lower Gold prices. Prices have held their ground despite a strong US Dollar. So this will be something we will continue to keep our eye on in the weeks and months to come.
All this does not necessarily suggest that Gold prices are now ready to resume their march to new highs. However, these are simply trends that may point to a gradual rebound in both Gold and Silver as we move into 2015. Should be interesting to see how this all plays out.
|Older Market Volatility Continues….||Newer Central Bank Gold Trends|