On the week, gold is up $14 from last Friday’s close by early European trade this morning, at $1243. Silver rose from $17.40 to $17.59 over the same timescale. Silver’s underlying strength relative to gold has picked up again, with the
The likely reason is good underlying demand for physical gold. Indian demand is picking up again, following the banning of cash notes, with Switzerland
Central bank demand can be expected to continue. Their tactics are to buy bullion quietly when it’s offered, which could be a good reason why the market appears so firm underneath. So, for the futures market, the physical background suggests that the market is underwritten, and any attempt to mark it down risks backfiring. The hedge funds are generally unconcerned over the physical position, because for them buying gold contracts is the other side of shorting the dollar. And there are signs the dollar rally is over.
Having been gung-ho over interest rate rises, a note of caution has crept into markets, with various indicators suggesting the US economy is slowing. At the same time as the Fed increased in interest rates last Wednesday, the Atlanta Fed downgraded its Q1 growth estimate from 1.2% to 0.8%. Consequently, with growth in the Eurozone showing some signs of life, the dollar’s trade weighted index looks set to ease further, and a lower dollar equates
The dollar’s weakness this year is reflected in our last chart, which is
While the outlook for gold seems set fair, there is still the hurdle of next week’s option expiration, and the rolling over of futures contracts. The slightest justification, such as news seen as supportive for the dollar, will encourage the option takers to mark prices down.