Gold Prices Hit On Global Stock Rally

July 11th, 2016 by

Gold prices dropped to test support at $1,350 this morning in New York, as Japanese elections results over the weekend guarantees a fresh round of stimulus for their struggling economy. The convincing win by Prime Minister Abe’s conservative coalition sent Japanese stocks shooting upward, as the Nikkei closed up 4%.

German-EU-stocksThe follow-on effect had European stocks seeing robust gains. The FTSE was additionally helped by poor, battered pound rose on news that Andrea Leadsom had bowed out of the race to replace David Cameron as Prime Minister of the United Kingdom. This makes Theresa May the next Prime Minister, and removes some of the uncertainty that is haunting British markets.

Gold had been looking for a reason to pause, and today’s global stock rally is it. Look for support at $1,350 and $1,334. Resistance can be found at $1,360 and $1,370. Gold bulls can take heart in a new Bank of America/Merrill Lynch forecast calls for $1,475 gold and $30 silver by the end of next year.

PM Shinzo Abe

PM Shinzo Abe

The big news this morning is that Japanese Prime Minister Shinzo Abe’s conservative coalition won a supermajority in that nation’s Parliament. This means that the government will now be able to coordinate fiscal policy with the Bank of Japan’s monetary policy (something that ECB president Mario Draghi wishes would happen in Europe).

On the geopolitical front, it also gives Abe the leverage to see a long-held dream come true: Amending the Japanese Constitution (which was written by the US during the post-WWII occupation of Japan) to allow the buildup of the military.

We are once again in the middle of the summer doldrums, where stocks and gold are supposed to trend downward. However, a summer international crisis has lend support to gold once again. Last year we had the Greek debt crisis that featured a standoff between the Syriza party and EU creditors. The summer before that was the Russian invasion of Ukraine.

Friday’s Markets

Spot gold ended Friday with a $5.60 gain, at $1,365.40. August gold futures settled at $1,358.40, a loss of $3.70. Spot silver closed out the week back above $20 an ounce, up 3% to $20.25. September silver futures gained 1.3% to settle at $20.10 an ounce.

charting gold priceBoth metals were hit hard in the immediate aftermath of a non-farm payrolls report that far exceeded even the most optimistic forecast. Gold dropped $24 to hit a session low of $1,334.70 before rebounding.

For the week, gold futures gained 1.5%, and silver futures gained 2.6%. This makes the sixth week of gains in a row on the weekly chart.

Crude futures saw modest gains Friday, but still closed sharply lower for the week. WTI prices lost 7.3% last week, while Brent futures shed 7.1%. Analysts expect oil prices to have a downside bias, as disruptions in Nigeria and Canada end, and the global oil glut begins building again.

Safe haven demand in the bond market continues unabated, as the US 10-year Treasury note hits another all-time low of 1.366% on Friday. (Yields go down as prices go up.)

 

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