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 Thursday 08 June 2017

Brief notes on gold - PM Bulletin

 

 

There’s been a sharp sell-off in gold this afternoon which occurred soon after the US stock market opened. This came after the ECB statement and Mario Draghi’s press conference but before former FBI Director James Comey’s testimony before the Senate Intelligence Committee. Obviously, the result of the UK General Election remains unknown.

Now the ECB meeting and press conference went off much as expected. The Governing Council’s statement was finely balanced in that it had both dovish and hawkish elements. It took out a prior reference to the likelihood of lowering key interest rates, but anticipated rates remaining at present levels for an extended period of time, “and well past the horizon of the net asset purchases.” The Governing Council also upgraded its growth outlook a touch, while downgraded its projections for inflation for the next three years. All in all, the event was a wash and this was reflected in the movement of the euro which softened a touch. There was certainly nothing in there to affect the gold price substantially.

In fact, it now appears that the slump in gold (which also drove silver prices lower) was triggered by a $4 billion sell order in the US futures market. Why that should be is anyone’s guess. It could be that an institution had accumulated the position as insurance ahead of today’s events. It could be that this investor saw little reason to hold the gold any longer as there was little market risk from the ECB, Comey or the UK election.

Now moves like this one can cause all sorts of damage - both technical and psychological. Gold, and silver, have had strong runs of late clocking up four weeks of back-to-back gains. The question now is whether buyers will come in and take advantage of the sell-off, or if the pull-back is part of a more substantial move lower?

But there’s also a positive side to today’s move, at least from a technical perspective. Gold has now filled the gap that opened up at the end of April. Back then gold gapped lower after the first round of the French Presidential election. This was when there was widespread relief that Emmanuel Macron went through to the second round where he was predicted to win the Presidency in a head-to-head with Marine Le Pen. While there’s no guarantee that gold will now head higher, there will be some relief amongst bulls that the gap has been filled. 

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Posted by David Morrison

Category: PM Bulletin


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