Weekly markets round-up for StoneX Bullion

Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.

Last week was something of a masterclass in how the gold market can work in times of stress. It is axiomatic that gold is a hedge against risk and has been for hundreds of years in assorted different ways. Last week’s price action demonstrated a number of things.

First; that the year-end book-squaring activity among a number of shorter-term, or potentially speculatively-oriented holders, cleared the way for the upward movements in price when geopolitical tensions escalated.

Second; that the longer-term holders who are using gold as a hedge against risk are still in the market and have firm hands, thus helping to provide a cushion of support that should keep the price underpinned between $1,500 and $1,550.

Third; that the physical market is still flat on its back and potential buyers were firmly on the side-lines last week in the face of volatility within an already elevated price range.

The chart below is very short term and shows how the price was pushed sharply higher at the start of the Asian trading day when there were worrying developments in the Middle East. We believe that each of these moves took place in thin conditions, with bids easily pushing the price higher. See how the price then meandered lower over the course of the Asian day and then sold off just as London was about to come in, showing that the market was a) not followed up by the physical and b) was really in a wait-and-see mode, watching for how the position in the Middle East would paly out. In the event, for now at least, the major tension appears to have been diffused and therefore by the end of last week the gold price was back where we started at the beginning of the year.

Furthermore the silver price did not go with gold. In a fully-fledged bull market it would have done so and the gold:silver ratio would have contracted. In the event, however, the ratio widened, showing that the market was not convinced that we were in a new genuine bull phase, and that silver was also keeping an eye on the potential economic and industrial ramifications of further problems.

So as we move through January it is fair to say that gold remains firmly in focus as a safe haven. It is also arguable that most of those professional investors who want to use gold as a portfolio stabiliser and as a hedge against risk may well already be on board, which constrains the sustainable upside for the time being. That said the outlook is currently more bullish than bearish, but for now we would expect some stabilisation and consolidation. The Chinese New Year celebrations begin on 24th January. At the moment the market is quiet, but the next few days will be in instructive as we monitor the level of fresh buying interest for the New Year.

Thought for the week

Gold is not the only safe haven; the Swiss franc, the yen and bonds are also important in this regard.

Chart for the week

Gold trading, five minutes intervals during the Middle East crisis; see the rallies at the start of Asia and the falls as London comes in