Gold weakens post mid-terms. Silver even worse
Gold weakens post mid-terms. Silver even worse by Lawrie Williams – Sharps Pixley
It just shows how wrong one can be in trying to outguess the market. We were right in our call that the Republicans would comfortably maintain their majority in the U.S. Senate at last week’s mid-term elections, but lose out to the Democrats in the House of Representatives but we were totally wrong in the effects this would have on the dollar and gold (and other precious metals too.).
We were of the opinion that a prospective legislative gridlock with a Democrat-controlled House and a Republican-controlled Senate would weaken the dollar and lead to a corresponding rise in precious metals prices. In the event, the opposite appears to have happened, with the dollar going from strength to strength which tends to mean that the headline price of gold falls – at least in U.S. dollar terms – with the other precious metals – silver in particular – following suit. However, although gold has fallen in dollar terms it has not in most other currencies and in some is at record levels. In the U.S. currency gold is currently hovering around the $1,200 level and a significant move below this psychologically important level could see it crash down back to the $1,150s unless the dollar strength trend is reversed.
Martin Murenbeeld has noted a recent close correlation between the gold price and the Chinese yuan. As the yuan weakens so does the gold price and the yuan is falling to close to 7 to the dollar as the latter continues to strengthen. The dollar index (DXY) has breached 97.6 – its highest level since May 2017 and with the U.S. Fed poised to raise interest rates by another 25 basis points in a little over a month’s time on December 19thwe don’t see the dollar weakening significantly before then unless there is some very weak U.S. financial data in the meantime.
Equities markets, though have continued to decline quite sharply over the past few days after an initial sharp gain once the midterm results were in. Yesterday the Dow fell over 600 points or 2.3%. The S&P 500 was also down just short of 2% while the NASDAQ declined by 2.7% reflecting the big decline in some key tech stocks. If the declines continue, or worsens in amplitude, then precious metals could see a bit of a bounceback as safer havens, but then the dollar has been the best safe haven at the moment and one doubts that this is going unnoticed by the investment community. Thus in general short term prospects for the precious metals are not looking good.