Monday Metals Wrap

Gold finished the week relatively flat from Friday, closing at $1580 AUD or $1,226.50 US. Silver finished around 2.7% higher at $22.28 AUD our time friday night. Silver looks the better buy at the moment with the gold/silver ratio starting to fall from a recent peak of 76 in January.

Both metals may continue to come under some selling pressure from a technical standpoint. Gold has found some support at this US$1,220 level, which sits around the upward trend line since November 2014. So there is a chance we can see a rally up from this level, but I believe that overall momentum is to the downside for now. Watch for a break south of $1,220 to confirm.

I mentioned in my last blog that I expected a breakout in the gold price, and most likely to the south, due to a few technical indicators. So it is looking more likely now that the recent US$1,300 is an intermediate top and we are likely to see lower US prices on no news. The question at the moment is which will fall quicker the Aussie dollar or the US gold price?

It is a lot more comforting for Aussie gold investors to know that the RBA has the goal of destroying some of our currencies value throughout the course of this year. I see the inevitable fall of the Aussie dollar as insurance for Aussie gold buyers, as it limits our downside risk, and will exacerbate any US gold price gains.

Now, on to the bigger picture and nothing much has changed on the fundamental side. Equities world wide are rallying on the back of stimulus, whilst GDP growth expectations continue to fall. I continue to think that equities overall are becoming increasingly overvalued and the excess liquidity in equities will eventually roll over into other asset classes, including gold. The S&P 500 p/e ratio sits at 19.79 currently, which is roughly 35% above the all time median.

Zero hedge has a good post illustrating the dislocation between current equity valuations and growth expectations seen here.

John Feeney.