Gold, silver, and the PGMs all opened flat on Thursday in a continuation of the previous trading day's pattern. The metals may be settling into more consistent price levels until it becomes clearer what pace the Fed will raise rates (and where interest rates will ultimately peak). There are, however, competing opinions on the near-term outlook for gold thanks to this ambiguity the Fed is maintaining.
Markets at Large
The metals were even stronger than their flat open would indicate: the dollar rose on Thursday morning, rebounding to above 97.7 on the DXY. It had lost 1.12% on Wednesday, dropping along with the U.S. stock market. The Dow fell 0.43%, closing just below 17,500. The S&P 500 lost 0.77%, falling below 2,050, and the Nasdaq fell the farthest, giving up 1.48%. It still closed above 5,020.
Gold held on to $1,073.50/oz by the end of trading Wednesday, just 0.2% lower. Spot silver was unchanged at $14.24/oz while the PGMs each were modestly in the green.
Thursday's steady action for the precious metals may have been helped by the report that weekly jobless claims hitting a 5-month high at 282,000. It did continue the 40-month (3-and-¼-year) streak of jobless claims holding below 300,000. Wall St did not react much due to the ambivalence of the news.
There do continue to be rumors and whispers about instability in the junk bond market, which mainstream financial pundits are beginning to pay attention to. The precious metals would certainly see safe haven flight if these fears come to fruition.
Interestingly enough, you can find polar opposite views among analysts about gold's near-term outlook. By the simple criteria of "Will prices be steady or choppy?" there are reasonable opinions on both sides.
HSBC (U.K.) suggests that gold will trade in a volatile range for as long as the Fed remains coy about its plans. This view certainly reflects the back-and-forth that has gone on over the past month as bears and bulls (shorts vs. longs) grapple with one another.
At the same time, Logic Advisors (from Upper Saddle Ridge, NJ) sees "sluggish" trading and a "tight range" for the precious metals. This view squares with the notion that the recent volatility has quelled because the rate hike is finally priced in.
Ultimately, the two contrasting perspectives agree on the final destination: that gold will go mostly sideways as we head into next year. They disagree on how it will get there, which can be of importance to investors looking to find bargains and buy on the dips.
While it is consistently noted that there have been ongoing outflows from gold-backed ETFs, one observer had a great take on whether or not these types of funds should be taken as a proxy for gold prices at all: "How reliable are GLD's holding reports? GLD does not give retail investors the right to redeem for any of its mystery physical gold holdings. This fact alone ensures the GLD shares to be nothing more than paper at the end of the day."
The distinction between paper gold and physical gold remains a key to making sense of the gold market.
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.