Precious Metals Weekly Round-Up: Gold Dips as Equities Rally

Gold lost some steam on Friday (August 16) after investors cashed in profits, causing equities to make gains and pushing the yellow metal down slightly.

Despite the small dip, gold is still on track for its third week of gains thanks to increasing concerns surrounding the possibility of a global recession as well as ongoing tensions between the US and China, which are supporting the precious metal.

“There are many investors who fear the next global crisis so there is this a sense of ongoing investment into gold, particularly by central banks,” said SP Angel analyst John Meyer.

Although gold is still making weekly gains and staying above the US$1,500 per ounce level, the metal is being weighed down by a stronger US dollar. The dollar has been supported by data that shows US retail sales surged last month, which has curbed some fears of a recession.

Even so, market participants continue to lean on the yellow metal and hold it in their portfolios.

“Gold is getting a lot more investor interest so it’s getting significant volatility,” said Ross Strachan, analyst at Capital Economics.

The precious metal has been on a rallying streak since the US Federal Reserve cut interest rates on July 31. Although the metal initially declined after the announcement, it began to pick up steam in the following session and has stayed above the lackluster levels it saw in the first two quarters of 2019.

With that in mind, investors have begun to wonder if the Fed will cut rates again, and whether the metal could make even more gains.

For Brien Lundin, editor of Gold Newsletter, the recent cut will not be the Fed’s last.

Speaking with the Investing News Network (INN) at the Sprott Natural Resource Symposium, he stated, “Wall Street in general has shown the Fed that it’s in charge, it needs more and more easy money, and sooner or later — probably sooner — the stock market is going to tell the Fed … that no, it needs another one, and then another one. Once it starts these kinds of rate cuts, it’s usually a long-term trend.”

As of 10:01 a.m. EDT on Friday, gold was trading at US$1,514.20.

Silver was relatively flat on Friday, but is continuing its recent rally around US$17 per ounce. Much like gold, silver has been gaining more interest from investors thanks to concerns surrounding the state of the US economy and ongoing geopolitical issues, particularly between the US and China.

Also backing the white metal is the strength that gold has seen in the last few weeks. As the price of gold continues to escalate, investors have begun to see the white metal as a cheaper safe haven asset.

“Silver is cheap relative to gold, so it has bigger potential. It is going to pull back lower … any dip below US$16 could push buying,” said Gianclaudio Torlizzi, managing director at consultancy T-Commodity.

Silver’s recent rally could lend credence to the theory that it will outperform gold in the not so distant future. As David Morgan, publisher of the Morgan Report, told INN, everything surrounds gold, and once it takes off, silver will follow.

“Once investors return to the precious metals, silver will catch up and most likely overtake gold, bringing the gold silver ratio back to a level of 70 to 1 or lower,” he explained.

Analysts at FocusEconomics agree with Morgan, saying in a recent note, “The rally in gold prices, which has widened the price differential between the two metals, could also spill over into the silver market (moving forward).”

As silver continues to climb, comments that it could go to US$130 are interesting to revisit. As of 10:15 a.m. EDT on Friday, silver was changing hands at US$17.20.

As for the other precious metals, platinum was relatively flat, still unable to break through the US$900 per ounce level.

Despite this, analysts at FocusEconomics see the price of the metal rising slightly from its current level thanks to strong investment demand.

“The extent of substitution for palladium in vehicles and the evolution of the global economy will all be important factors to watch going forward,” they said in a note.

As of 10:21 a.m. EDT on Friday, the metal was trading at US$837.

For its part, palladium was up slightly on Friday, but remains out of the US$1,500 per ounce range.

However, there are still many market participants in palladium’s corner, with Metals Focus stating that it believes the metal will continue to rise. The firm forecasts that autocatalyst demand will more than likely go up by 3.6 percent in 2019, setting records at 8.59 million ounces due to tighter emission standards.

As of 10:22 a.m. EDT, palladium was trading at US$1,436.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.