LAWRIE WILLIAMS: Gold falls and recovers as equities and dollar present mixed signals
LAWRIE WILLIAMS: Gold falls and recovers as equities and dollar present mixed signals from Sharps Pixley
After a few days of optimism for the gold bulls, the early part of this week has seen the yellow metal plunge back to the £1,210s as the dollar continues to rise. At the same time equities have also recovered from much of their heavy losses of last week perhaps staving off the October collapse many had been suggesting. This morning however gold has picked up a little, – some equities, notably the Nikkei in Japan, have started to move downwards again and the U.S. dollar index has, at the time of writing, come off a good number of basis points
So gold’s fall, and recovery this morning, has probably been more about the dollar than the past couple of days’ recovery in equities, although undoubtedly there is some correlation here – but the dollar looks like it remains the principal driver.
But, as we pointed out in an article a few days ago (See: Gold in almost any other currency…) it’s an ill wind that blows nobody any good! Dollar strength means that the gold price, despite its fall in U.S. dollars, remains strong in the currencies of most gold-producing nations – indeed is near, or even above, record highs in some. This means, until inflation catches up, that the economics of gold mining in many of these nations has actually improved rather than declined despite any apparent fall in the U.S. dollar gold price. This is perhaps why peak gold is possibly not quite yet with us, although global gold output is probably bouncing along close to its eventual high point.
And what of global gold demand? Today the World Gold Council has just published its latest Gold Demand Trends report relating to Q3 2018. This shows that gold demand is actually up year on year – just – , although this is largely down to an increase in central bank gold offtake, countering a big general erosion in gold holdings at the gold ETFs. But, of course what the report does not show, given its restricted timeframe, is what appears to be a recovery in ETF gold inflows since the end of the last quarter. Whether this yet represents a turnaround in investor and institutional sentiment towards gold remains to be seen – but it could be a start.