With the markets still operating on thin volumes amid the holiday season between Christmas and New Year’s, the precious metals drifted slightly lower on Monday morning. The metals followed crude oil prices lower, as both crude benchmarks were more than 2% lower this morning. Thus far in December, oil prices have lost 11%. Meanwhile, the dollar was flat at 97.9 on the DXY index.
Spot gold was down about 0.5% at 9:45 am ET, trading around $1,072/oz. The Platinum Group Metals were each essentially flat, each down just $3 per ounce, although silver fell the farthest, losing more than 2.3% to $14.15/oz.
A brief glance at the daily price chart for gold resembles a ping-pong match. Spot prices have bounced up and down all morning while sustaining a steady sideways pattern. Strong support seems to be at the $1,069/oz and $1,067/oz levels, while resistance remains unchanged at $1,080/oz and then $1,088/oz.
More Attractive Alternative
One of the themes of 2015 that has become clearer now that the year is nearly over is the poor performance for most “mainstream” asset classes (like stocks, bonds, and managed money). According to Bloomberg, “After embracing everything from Treasuries to high-yield bonds and technology shares amid seven years of zero-percent interest rates, investors found themselves with nowhere to run at a time when the Federal Reserve’s campaign of stimulus drew to an end.”
With essentially “nowhere to run, nowhere to hide” in a down year in most markets, investors struggled to make any money by allocating their investments to the most commonly held assets. This is the primary goal of hedge funds, which are on track for their worst annual performance since 2011 (barring an unheard of turnaround in the next few days). Meanwhile, global stock markets are generally back where they started 2015, unchanged through an up-and-down year. Some believe this trend will be exacerbated by the Federal Reserve normalizing rates, which could provide some momentum for alternative assets like physical precious metals. It is typically the case that when popular assets are on the decline, gold shines brighter.
Today is the gold options expiry (December 28th), meaning that the paper markets for trading gold may see a bit more action today as positions must be reckoned. Somewhat similarly, we are likely to see a lot of tax-loss selling and year-end “window-dressing” for managed money as these funds attempt to make their books look as attractive as possible for the end of the year.
Central Bank Demand
2015 has proven to be another strong year of bullion purchases by central banks, which were yet again net purchasers of gold.
Russia’s central bank marked its 9th consecutive month of purchasing precious metals by adding another 22 tonnes of gold to its reserves in November. Russia’s gold reserves have added 187 tonnes year-to-date.
Official gold imports to China did fall for the second consecutive month, however. Much of this is being attributed to the path of increasing interest rates by the Fed. This is yet another sign of how interrelated the U.S. and Chinese economies—the world’s two biggest—really are. Even with the declines, 66.8 tonnes were imported during November.
Elsewhere, even in a down year (thanks to El Niño wiping out profits for rural farmers) it appears that India’s gold demand will still approach 1,000 tonnes, keeping the world’s largest democracy in the top spot in terms of annual national gold demand.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.