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The Gold Market Quarterly Update

Friday, June 29, 2018

In a period of intense geopolitical upheaval, the gold market has experienced a level of volatility over the last three months that’s been unseen for some time. After the imposition of President Trump’s steel and aluminium tariffs on the EU, China, Canada, Mexico and others, as well as the continuing tensions and developments in North Korean relations – the gold price has certainly experienced some turmoil over the last three months.

Gold opened the period on April’s first day of trade at £949.65. By the end of June, the gold price experienced highs of £983.83 and lows of £937.24, and ended, at the time of writing, at an almost identical price to where it started at £949.53.

Early dollar uncertainty

Gold deteriorated in value quickly after the beginning of the month, against an unexpected surge in the value of the dollar and resulting confidence in the strength of the American economy. The month’s opening price of £949.65 was itself a retreat on higher prices at the end of March, and the value continued to sink to £944.18 on the 12th April, for similar reasons. The lowest spot price anywhere between April and June was recorded in the first half of April, when, on the 17th, it fell to £937.24.

Tensions in North Korea

North Korea has dominated the gold price headlines and other precious metals news for months, and this period is no different. With increasing confusion as to whether de-nuclearisation talks with United States President Donald Trump were set to occur, many conflicting letters to and from and, finally, a summit – there’s certainly been some ups and downs.

The effect of these circumstances on the gold price in May was actually somewhat less than was expected. Nonetheless, North Korean events nudged the price up from its lows towards the end of April, which then eased once again to £955.09 on the final day of April.

Continued strong performance of the American economy caused sterling to become cheaper in relation to the dollar through the rest of May, which raised the price of gold relative to sterling. Gold therefore hit highs of almost £970 on both the 4th and 10th of May.

Turmoil in Italy

By the end of May, headlines around the world were dominated by news of the chaos in Italy as political parties struggled to assemble a coalition after a fractious and bitter election some months ago.  After dipping on the 17th to £952.07, prices continued to rise again through May to £978.41 on the 25th May and the highest figure seen across all three months, £983.83 on the 29th May.

This followed ‘heavy selling’ across European financial markets in response to the Italian crisis, which reportedly had investors fearing a snap re-election in Italy. The upcoming no-confidence vote in Spanish Prime Minister Mariano Rajoy, which he went on to lose, also bolstered gold during this period.

Trump tariffs

Prices fell over the beginning of June as tensions eased. Gold had a brief surge on the 14th, when the European Central Bank announced its plans to maintain interest rates at the same level. On the same day, silver reached a two-month peak against the dollar.

Things were to change the very next day however, when a host of investors sold up supplies of the commodity simultaneously, causing a one-day change in value from £977.71 on the 14th June to £968.69 on the 15th.

Investors bought gold expecting the price to rise after both the imposition of the Trump tariffs (which affected the price less than expected) and the expected rise of European interest rates (which didn’t happen). Mass simultaneous liquidation of assets thus quickly suppressed the gold price.

From this low point of £968.69, prices continued to fall through the remainder of June, as the American economy, the dollar, and equities steadily recovered from the shock that the tariffs had caused. As we approach the end of June, the price is now hovering around £950.

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