January was an unusual month. It began with a surprising change of tact from the North Korean government. A phoneline to South Korea previously closed by Kim Jong-Un was reopened, with contact made to the South expressing their wishes to engage in diplomatic talks in the coming weeks. These talks have since led to a united Korea competing in the Winter Olympics in Pyeongchang.
With one of the major driving forces behind gold price rises now playing peacemaker, it’s no surprise that for the first week of January prices were very stable for both gold and silver. At the same time investors were enjoying the biggest bull run for the stock markets in the past decade or more so that was their primary focus, leaving the precious metal market quieter.
From the prices listed below you can see that generally prices were very stable for the month, with the US Dollar vs Gold being an exception, but ultimately prices ended fractionally down compared to the start of the month.
GBP: Jan 1st = £964.49, Peak = £981.50, Low = £944.73, Jan 31st = £947.79
USD: Jan 1st = $1302.55, Peak = $1364.11, Low = $1302.55, Jan 31st = $1345.60
EUR: Jan 1st = €1084.63, Peak = €1104.34, Low = €1078.60, Jan 31st = €1083.57
GBP: Jan 1st = £12.54, Peak = £12.72, Low = £12.11, Jan 31st = £12.21
USD: Jan 1st = $16.95, Peak = $17.64, Low = $16.94, Jan 31st = $17.34
EUR: Jan 1st = €14.11, Peak = €14.33, Low = €13.79, Jan 31st = €13.96
The US Dollar was the big driving force for the month’s activity and experienced a rollercoaster ride to start 2018 off, reaching a three-year low of $1302.55 per ounce of gold towards the end of January. The impact on its value was caused by a multitude of factors. The US Senate was in a voting stalemate for several days while trying to pass budget spending for the next month. The government shutdown shook faith in the Dollar and saw prices tumble. This was then exacerbated by the improved Pound Sterling, as well as the reliable duo of the Euro and the Yen.
The final issue, and perhaps the most significant, was the confusing contradiction in fiscal aims from the US Government. Secretary of the Treasury Steven Mnuchin stated that the United States’ economy benefitted from the weakened Dollar, in a speech at the World Economic Forum in Davos, Switzerland. Within hours the price of gold had risen as the value of USD dropped, and a few hours after that Press Secretary Sarah Sanders briefed journalists about the “very stable dollar” and how it reflects the strength of the US economy – sentiments echoed by President Trump later that week in his speech to the Davos conference, which in turn bumped the value of the US Dollar back up slightly.
Prices in Pounds and Euros were a lot more stable, with the odd fluctuation in gold price vs the Pound due to the usual reports about Britain’s Brexit negotiations with the EU. Bad news hurts the currency value, which in turn causes a drop-off in interest, but the increased interest rates from the Bank of England put in place in November 2017 meant that Sterling has been resilient.
For the Euro, it was plain sailing. The Dollar was weak in January and the Pound balances on a knife edge while Brexit negotiations continue. Traditionally, the Euro is considered a riskier investment than USD, but with investors taking risks in the stock markets some of that bravery rubbed off into the currency market.
Demand globally for precious metals since the start of 2018 has been slow. The interest is there – hence the lack of a price crash – but the stock markets are only just beginning to calm down, so for January at least there was no great rush to invest in bullion instead of stocks. In terms of material use, the predicted rise in demand for gold in India never appeared, with jewellers in the state citing the weak Rupee vs the USD as the main deterrence from buying. In China and South Korea, the demand for silver was hit by tariffs imposed by the United States on importing solar panels from the country – panels which use silver. Palladium too appears to have run out of steam after an incredible 13 months of rapid price rises to match demand from the automotive industry.
It certainly hasn’t been a boring start to the new year but for precious metals it’s a waiting game. Let the stock market bull run fizzle out and watch prices rise, but be wary of an improved US Dollar.