Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

Sprott's Thoughts October Gold Update

Sprott's Thoughts

October Gold Update

What a way to start October. Gold slipped mightily, easily falling through US$1,300 on Oct. 4th to bottom at US$1,269 per oz. before closing the day at US$1,283, down 2.3%. That took it back to pre-Brexit levels, erasing a move that had been consolidating for three months. The next day it lost another US$14.

Silver did even worse. After leading gold the last few months silver fell off a cliff, losing almost US$1.40 to close at US$17.80 per oz., a 7% single-day decline. As is often the case silver has been trading like its cousin gold, only with wilder gyrations – and this move was no exception.

Clearly, the call that the ‘summer correction is over’ and that autumn would be golden is not panning out. So what is the new call?

It’s looking like a sideways season for gold through the rest of the year.

The near-term outlook is fairly bearish, as down spikes rarely occur in isolation. Disappointed longs will sell and anxiety over what’s ahead for gold means a not particularly significant event could catalyze an outsized gold response. Uncertainty over the US election and anxiety over the December rates decision will keep gold capped until those milestones are over.

That being said, there are still a lot of gold bulls out there who will buy into dips, muting the slide. From a chart perspective, there is significant support in the US$1,250-$1,260 level. That is the pre-Brexit support platform and could well represent the new normal for the rest of 2016.

It’s important to note: at US$1,260 per oz. gold is still up 16% this year. Even if it feels like gold’s rise happened ages ago, precious metals have mostly held onto their gains – and those gains were big enough to absorb corrections.

Corrections will continue. Gold in particular will react to economic data (like the jobs report that came out two days later, its narrow miss causing much confusion for gold traders) and to the election (Hilary rising is one reason gold is sliding, even though her spending plans actually support the yellow metal) and to US corporate earnings (which have now declined six quarters in a row), all the while pricing in a December rate hike (expectations of a hike boosted the US dollar 1.3% in the first week of October, amplifying gold’s slide).

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