On Sunday, Nov. 15, I watched the NY spot gold market closely to look for its reaction in the wake of the terrible Paris attacks.
Right at the open, the gold price shot from $1,085 to $1,090 as traders bought gold as a safe haven in reaction to concerns about geopolitical instability. But that was short-lived.
As the markets began to digest the news, stocks rallied on Monday, Nov. 16, were flat on Tuesday, rallied again on Wednesday, and moved sideways Thursday. They closed the week with a 91-point bump Friday.
By mid-day Tuesday, Nov. 17, gold sold off as the markets shrugged off the Paris attacks. It touched the $1,064.50 level momentarily, but then quickly bounced to close at $1,069.
On Wednesday, gold prices popped a little to about $1,072, post-October Fed minutes release at 2 p.m.
But it's the action in gold stocks that stole the show...
Spot Gold Price vs. Gold Stocks
Here's a look at the comparison between spot gold and gold stocks last week:
While gold was essentially flat on the week, gold stocks rose about 3.5%.
But I'd like to draw your attention to around 2 p.m. on Wednesday, Nov. 18. That's when the Fed's October minutes were released and reinforced the likeliness of a December rate hike.
To see gold bounce on that news tells me that it's the possible removal of uncertainty (as twisted as that may sound) that helped spot gold move higher. It may also be the expectation by the market that the Fed simply is unable to raise rates by much and is even less likely to keep raising them afterwards.
For their part, gold stocks zoomed, bottoming around noon on Wednesday, then dramatically reversing course. This started a couple of hours before the Fed minutes were released.
Gold stocks then bounced around, becoming a little volatile as the Fed minutes were being digested, but proceeded to surge higher as the afternoon wore on.
On Thursday, Nov. 19, spot gold gained about $11 as stocks were slightly off. Perhaps the market realized that the Fed's hands were pretty much tied. It would be unlikely to raise rates much, and even then, further increases are unlikely.
That weighed on the U.S. dollar. On Wednesday, Nov. 18, the U.S. Dollar Index reached for the 100 level but couldn't poke through, closing around 99.75. Then on Thursday, Nov. 19, it headed further south, closing at 99.06.
This action is likely what boosted the spot gold price. But the action from gold stocks was particularly strong.
When the Market Vectors Gold Miners ETF (NYSE Arca: GDX) bottomed around noon on Nov. 18, it hit $12.92. That was below the previous closing low for 2015 of $13.04 in late August.
However, GDX closed that day at $13.49, then gapped higher at the open on Nov. 19 to finally close at $13.97.
For now, spot gold has been acting relatively strong. And there are other signs of encouragement...
Bullish Sign for Spot Gold
The following chart from Bullion Management Group shows how registered gold inventories at the COMEX are at historic lows, down some 95.6% since 2008.
The current level is 151,385 gold ounces available for delivery against futures contracts. The ratio of paper gold (futures contracts) to physical gold has reached a mind blowing 298:1. That means there are nearly 300 claims for each ounce of gold.
Sounds like an accident waiting to happen.
Meanwhile, minutes from the European Central Bank's (ECB) Oct. 22 meeting revealed the governing council was concerned about persistent low inflation and the Chinese and other emerging markets' slowing economies.
Some members argued there was even a case for more easing action at that very meeting. Although no changes were made, ECB President Mario Draghi said the ECB could boost its $1.2 trillion bond purchase program at the December meeting.
While this kind of action may weaken the euro and boost the U.S. dollar, it would be supportive of gold priced in euros. And it may just light a fire under Europeans to buy gold, boosting demand.
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At the same time, the Fed knows that if it does raise rates, it can't do so by much. The stronger dollar is already hurting profits at multinationals, and higher rates increase the government's massive debt burden.
So the U.S. dollar's strength may be limited as well. And that too could help push gold higher.
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