Gold
priced in dollars hardly changed over the first quarter of 2015, but silver
performed strongly, up 7%.
In
generally choppy markets across all asset classes silver was bettered only by
the Nikkei 225 Index. This compares with the NASDAQ up 3%, the US long bond
up 2.6%, and the Standard &Poors up 1%.
The consensus opinion that the dollar will continue rising is almost total,
which is the other side of the gold trade. But while the dollar has risen,
gold has not fallen: in other currencies it has gained, the principal
exception being priced in yen, which has been consolidating against the
dollar after last year's weakness. Gold priced in the other major currencies
is shown in the next chart.
Being
unchanged in dollars over the quarter, gold outperformed most other asset
classes, with crude oil down 15%, the euro 12.2%, sterling 5.1%, and copper
2.2%. The performance of both gold and silver is against a background of
growing pessimism about global deflation relative to the US, with the Managed
Money (MM) category for gold on Comex increasing short positions to record
levels, shown in the next chart which is updated to Tuesday last week.
Hedge
funds selling gold futures are buying the dollar and not necessarily
expressing a view about gold, other than something has to be sold to buy the
dollar. Therefore, if there is a change in sentiment against the dollar, this
could have a dramatic effect on gold and silver prices because it would
almost certainly trigger a substantial bear squeeze.
This market condition appeared to drive prices higher in trading on
Wednesday, the first day of the new quarter. Up to that point a range of
markets appeared weak ahead of quarter-end book-squaring, an influence that
has now passed. Gold rose as much as $27, or over 2% on Wednesday before
settling at $1204. Silver moved up as much as $0.55, or 3.3%, before settling
at $16.95.
Overall, trading is subdued by the Easter break, with many markets closed on
both Good Friday and Easter Monday.
Looking forward into the second quarter, the principal concern has to be the
unanimity of opinion that the dollar reigns as king over everything else. The
certainty with which the overwhelming majority of hedge funds, banks and
other investors hold this view is reminiscent of investor psychology in
September 1987, when just a few weeks' later equity markets suddenly crashed
for no reason other than everyone was fully invested and no one left to buy.
If the dollar does have a major correction, it should be reflected in an
improved outlook for precious metals starting from a sound base.
Next
week
Monday
Japan:
Leading Indicator.
Eurozone: Sentix Indicator.
US: ISM Non-Manufacturing Index.
Tuesday
UK: Halifax
House Price index, CIPS/Markit Services PMI.
Eurozone: Composite PMI, PPI.
US: IBD Consumer Optimism, Consumer Credit.
Japan: Current Account
Wednesday
Eurozone:
Retail Trade.
Japan: BoJ MPC Overnight Rate, Economy Watchers Survey.
Thursday
UK:
Trade Balance, BoE MPC Meeting and Rate Decision.
US: Initial Claims, Wholesale Inventories.
Japan: Bank Lending Data.
Friday
UK:
Construction Output, Industrial Production, Manufacturing Production.
US: Import Price Index, Budget Deficit.
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