This Week’s Gold Price Drop
What made the gold price drop this week?
What I love about my job is knowing that in a blink of an eye, the gold price can completely change. Like all things if you are unprepared it can catch you completely off guard and as a bullion dealer you begin eating losses. On the flip-side the price can soar and everything we bought yesterday can suddenly be worth exponentially more. That I suppose is the fun of it. As my CEO always says to me, “we live and die by our decisions” and like most things in life that is fundamentally true. It is about being pragmatic and knowing when to turn a profit and not trying to play the market – that is when you can get caught and badly. As with gold’s volatility and most of life’s circumstances we are faced with, there is a chain of causation. Sometimes the action and result cannot be pinned down to one set of reasons. Unlike a legal arena where causation isn’t necessarily sufficient to create a legal liability, the gold price and most specifically being caught on the wrong side when price collapses, will goad you into thinking you should have known better and “why didn’t I wait to buy” but the reality is, to pin a cause to the result of a gold price drop is not always an easy judgement.
The Gold Price Drop Analysed
On Monday the LBMA AM Fix was £860.886/$1250.40/€1115.840 and yesterday’s PM Fix was £829.520/$1220.60/€1094.769 – in sterling that is a drop of 3.64% in four days. Currencies likewise GBP to USD opened on Monday at 1.4497 and closed yesterday at 1.4704 – in sterling a rise of 1.43%. Sterling is now sitting at it’s highest since early Jan this year.
Typically when sterling increases against the dollar, the gold price moves lower here due to the conversion from the gold price in dollars to the pound. The dollar price has been strengthening this year which I have mentioned previously in my 2016 Gold Forecast at the start of this year. Solidifying the dollar has been on the FED’s agenda from last year and inevitably it will continue. Despite this week where it has softened for sterling, USD against CNY (Chinese Yuan Renminbi) has strengthened considerably and is back up to the strength we saw in February. I wouldn’t be at all surprised if the March on Beijing/Hong Kong (economically) continues especially after announcements that the FED are looking for further interest rates rise – possibly in June.
Having said all that, a large Chinese ICBC Standard bank have just bought a vault in London from Barclays, that can hold up to 2,000 metric tons of gold, silver, platinum or palladium. Furthermore, the Chinese Central Bank are also heavily topping up their own reserves and will likely continue doing so. As has always been the case, gold is always part of the bigger picture, it may well lose skirmishes along the way but in the long term, the causation of currency volatility and recessionary cycles, will mean that gold as always will be the haven that investors and the prepared turn to.
Article by Michael Cooper