Gold And Silver Firm In Face Of Abnormal Equity Volatility

(December 28, 2018 - Lawrie Williams)

The wild fluctuations in the U.S. equities markets over the past few days have to be a huge cause for concern in terms of the honesty, or propriety, of the equities markets - and in reflection on all other markets too - not least those in precious metals.  The U.S. President and his banking allies are obviously well versed in the theory that if the markets which make the headlines look to be behaving positively then the general population (the electorate) will feel all is well with the financial world and the economy and may be acting accordingly.  Perception is key in politics.

Take yesterday (December 27^th) as an example.  For much of the day U.S. equities were heavily into the red after a huge upwards move the day previous.  The Dow was down some 700 points at one stage but kicked up hugely in late trading to end the day around 230 points to the positive, but without any specific financial news to justify such an enormous reversal.  Equities markets just don’t usually behave in quite such a volatile manner without some kind of huge financial stimulus behind the move.  Is it any wonder that some commentators are hugely suspicious of this kind of market action? As Tyler Durden at www.zerohedge.com wrote ”Dow futures plunged over 760 points after tagging yesterday's highs overnight, but those darn algos ripped the market higher in the last hour erasing the entire drop...  with the biggest buy program since February and biggest reversal since 2010”. Is this the consortium of bankers otherwise known as the Plunge Protection Team in action?  ZeroHedge is always one of the most informative websites in commenting on market anomalies of this type.

Asian markets do not seem to be overly impressed and closed overnight in the red - although not hugely so.  European markets, after being mostly heavily negative yesterday, did turn positive today, taking their lead from the U.S. close, but it remains to be seen where equities will head in the final days of trading up to the New Year.

Gold and silver have been holding up reasonably well in the face of this equities market volatility but of course if the enormous equities markets can be influenced in the way we think we have been seeing, how much more so can be the precious metals markets which are minute by comparison?

Gold seems to be coming up against a new upwards resistance level of around $1,280, but a breakthrough here could see it back at $1,300 by the year end, although there’s not much time left to make this level.  Equities turmoil has seen gold’s position as a wealth protector start coming back into mainstream investment - indeed only a couple of days ago there was an enormous 15.88 tonne gold deposit into GLD - the biggest gold ETF - which is a good indicator of a degree of interest renewal in gold as a safe haven asset.  Silver has been performing even better in percentage terms but it is still too early to say if we are yet seeing a significant investment upturn in gold’s more volatile, and far less costly, sibling.

Overall we see the prospects for all the precious metals as being on the positive front. We are seeing ongoing U.S. and European political divisions, continuing trade wars which show little sign of diminishing, a U.S. Fed which may, or may not, continue with its tightening programme, a number of major military flashpoints around the world, a U.S. President prone to shooting from the hip and vulnerable to moves to impeach him by his political opponents (not that there is likely to be enough support in the Senate to see such a process through - but the fact that the process may be initiated may be enough to create uncertainty in the markets.)  A continuation in the recent decline in equity indexes may also help gold as one of the reasons given for gold’s seemingly poor performance since April has been that investors have been seduced by seemingly better returns in equity valuations which, until the past few weeks, had seemed to be moving on an ever-upwards path.

Today U.S equities have opened lower which can’t be too surprising given yesterday’s huge swing to the positive.  We’ll need to wait and see where markets are allowed to end the year but again we wouldn’t be too surprised should there be another managed upturn before the end-year close. for appearances sake