Lawrence Williams

About the Author Lawrence Williams

Former CEO of Mining Journal Ltd. and subsequently General Manager of Mineweb.com - a position relinquished in October 2012 to continue as a freelance writer. Graduate mining engineer from London's Royal School of Mines (part of London University) - has worked on gold, platinum and uranium mines in South Africa, copper in Zambia, uranium in Canada and holds a South African Mine Manager's Certificate. Joined Mining Journal originally as Financial Editor and worked for the company for over 30 years spending 13 years as CEO. Particular follower of the gold and platinum market and has written numerous articles on precious metals for Mining Journal and Mineweb and has also written for London's Financial Times as well as for other media and publications including SeekingAlpha. Has been regular writer for mineweb.com - and now has own blog - www.lawrieongold.com as well.

Gold an Immediate Beneficiary Should Bear Market in Equities Become Reality

New York closed Monday with the gold price at $$1,162.40 up from $1,157.30. In Asia this morning gold fell back to $1,156 ahead of London’s opening. The gold price was set at $1,154.40 down from $1,164.20 at the LBMA gold setting. The dollar Index was almost unchanged at 94.76 from 94.72 and the dollar was trading against the euro at $1.1390 down from $1.1379. In the euro the fixing was €1,013.35 down from €1,023.11.  Ahead of New York’s opening gold was trading at $1,154.65 and in the euro at €1,013.74, and subsequently moved up $10 or so after New York trading came in.

The silver price closed at $15.85 up 1 cent over Friday’s close. Ahead of New York’s opening, silver was trading at $15.67.

Price Drivers

Gold broke above $1,160 hitting over $1,170 at one point. We are seeing the gold price consolidating around that level now but psychologically the gold market has now changed. While there were no sales or purchases of gold into or from the SPDR gold ETF or the Gold Trust the gold price appears to be on the attack not the defense. The holdings of the SPDR gold ETF remain at 687.196 tonnes and 160.62 tonnes in the Gold Trust.

Today, we continue to watch to see if there is follow-through to take it higher. We do not expect a fall of significance in the gold price from here.

We believe the change of mood in the market is still due to the impact of a slowing global economy, which will impact the exchange rate of the U.S. dollar. With U.S. monetary authorities holding the dollar’s exchange rate down to current levels, the gold price will move against all global currencies and not just in the opposite direction to the dollar. We may be watching this as a structural change in gold’s performance.

With New York dominating the gold price, a perception that a recession is on the horizon within the next three years is fuelling the probability of an equity market fall. With Price/Earnings ratios at extremely high levels now in New York, any rate hike at all will frighten such investors. We have no doubt that with the U.S. investor is largely out of the gold market, so not in a position to sell gold to cover margin calls. Hence, the attraction of gold will be immediate, should a bear market in equities [and bonds] become a reality.  At that time, we believe that bullion prices will outperform shares in gold mining or silver mining companies, at least initially.  Financial markets have set a pattern of discounting such events well in advance. This is an additional worry for global financial market investors.

Silver will continue volatile against the gold price both ways. This is consistent with its historic performance.

 

  • Dan E.

    “The holdings of the SPDR gold ETF remain at 687.196 tonnes”

    Speaking of which, 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. GLD also has a glaring audit loophole in their prospectus that states they have no right to audit subcustodial gold holdings. To this day, I have not heard of a single good reason for the existence of this backdoor to the fund. Some other red flags I’ve verified and welcome everyone else to do the same:

    “Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I specifically asked for clarification on this clause and about how much of the gold was insured, the representative proceeded act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent doesn’t know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.

    I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”