June has not been a positive month for the precious metals investor, but basics suggest that the overall trend should still be upwards.
Author: Lawrence Williams
Posted: Saturday , 30 Jun 2007
LONDON - The month of June has actually seen little change in the price of gold from beginning to end, while silver, which had been outperforming the yellow metal, has been seeing perhaps a little more weakness over the period.
Indeed over the month, the gold price has seemingly bounced along between the $640 level and a little over $650. Every time a breakout seems imminent above or below these two levels, the market counters it immediately.
The big question facing the gold investor at a time like this is "Is the $650 level a top - or the $640 level a bottom?" Personally I'd incline towards the latter given that this level has held despite some pretty adverse news in the market regarding Central Bank and IMF current and proposed sales levels. The market has absorbed some pretty impressive bullion sales levels through May and the beginning of June, while for part of June, the expected continuing dollar weakness did not materialise - until right at the end of the month.
The strength of the dollar has almost always been the main driver of the gold price, and if the downward trend which re-appeared last week, continues, then this bodes well for those who are anticipating a gold price breakout upwards, almost regardless of the levels of Central Bank sales.
From the chartist perspective too, perceived weakness in the gold price earlier in the month has given way to a bullish trend as the various downturns have so far failed to break the 200 and 300 day moving average levels. While this may indicate a bullish perspective, should further weakness materialise bringing the price down below the 5 level in the short term, chartists would probably see this as a sell-off signal.
The silver price, as mentioned above, has performed worse than gold over the past few days, but whether this represents a significant break from recent patterns remains to be seen. Overall silver fundamentals are quite positive, and it is likely to get back to tracking the gold price fairly closely in whichever direction this takes it. The far lower price gives it the potential again for outperforming gold in any major upturn.
As we have said here before, although nearly all the indicators for both gold and silver remain positive, the metals do have the capability of confounding the market, but usually this only happens if external factors force the markets down - and at the current time external factors, like dollar weakness, should work in the metals' favour given the high levels of recent bank sales have tended to curb upturns rather than lead to serious downturns.
The view from here is thus cautiously bullish for both metals, with the potential for a sharp increase - but perhaps not now until after the northern hemisphere summer holiday period is over.
While the viewpoint on metals may be cautiously bullish, the outlook for gold mining stocks may not be so rosy with continuing cost increases cutting margins. This is not to say that all gold stocks will be so affected - one needs to be more selective in one's choice. Silver mining stocks may offer better returns in the short term, given the costs of metal production are often so low for some of the blue chip producers, buoyed up by continuing high prices for base metals by-products. But again, one need to be selective to make good returns.