Pushed higher early in the week on a stronger euro and the prospect of more central bank stimulus measures, then lower after the realization that the June U.S. labor report was not bad enough to prompt the Federal Reserve to launch another round of quantitative easing, precious metals prices ended lower last week, continuing a pattern of alternating up- and down-weeks that has extended for nearly two months.
During this time, an intriguing triangle pattern has developed for the gold price, setting the stage for what could be a big move in one direction or the other, as more and more investors around the world realize that the very foundation of the global financial structure - its monetary system - is likely one of the root causes of our recent problems and that a judicious allocation to gold in one's investment portfolio might be a very good course of action.
For the week, the gold price fell 1.0 percent, from $1,599.10 an ounce to $1,582.40, and silver declined 1.4 percent, from $27.49 an ounce to $27.10. Gold on the spot market is now up just 1.0 percent for the year, down 17.7 percent from its high last year, and the silver price is now down 2.8 percent in 2012, some 45.2 percent below its peak in the spring of 2011.
For a few days last week, it appeared as though both gold and silver might break out of their recent rut when central banks in Brussels, London, Beijing, and elsewhere cut interest rates and launched new money printing measures, however, when it became clear that the most important central bank of them all - the Federal Reserve - is now likely to sit on their hands for at least a few more weeks, sellers quickly outnumbered buyers and prices moved lower.
As never before, precious metals are driven by prospects for more Fed money printing and, until the "fiscal cliff" comes a little closer later this year and important new drivers emerge to push the trade-weighted dollar lower and spur new demand, gold and silver prices will continue to hinge on what the Fed may or may not do with their printing press that, lately, Fed Chief Ben Bernanke has been reluctant to use.
It's worth drawing attention to the developing triangle pattern for the gold price as shown in the StockCharts graphic below as these sort of formations frequently resolve themselves in rather spectacular fashion, not necessarily in the direction that investors and traders desire, but spectacular nonetheless.
Based on the relative angles of the upper and lower bound, this is setting up for a resolution sometime in August, around the time that Federal Reserve officials gather in Jackson Hole for their annual symposium, a meeting that sparked a huge gold rally in 2010 when they signaled "QE2″.
This bears close watching.
What also bears close watching are the evolving views of the world's experts on global finance, last week this commentary by Byron Wien of Blackstone reverberating throughout the gold market as "The Smartest Man in Europe" cast a dim light on the global financial system as we know it, answering as follows when queried about what he's currently doing with his money:
It is hard to hide in stocks. Even Danone is reporting disappointing earnings; people are so worried they aren't even buying yogurt. The French auto companies are in trouble. I think gold is going much higher. I am buying energy stocks because I want to own something real. Preserving capital is my focus now, not making money, but I like IBM and Apple. Also some Swiss multi-nationals. If Obama wins in November the market will go down. A Romney victory will create a rally, but once he gets into office he will find there is not much he can do to make things better.
Reading this missive in its entirety is highly recommended as the "smartest man's" views about such things as the limits to economic growth, rising debt levels, and looming inflation are much like my own. It's no wonder Wien says he parted company "somewhat dazed" and those seven highlighted words above about where the gold price is headed in the context of the rest of this commentary speak volumes about our collective future.
Others in Europe who think the gold price is going higher include the two biggest German banks. Last week, Deutsche Bank said that energy and metals will have a strong second half of the year and reiterated their call for a $2,000+ gold price next year while Commerzbank said they "are confident that bargain-hunters will support gold at the current prices, and expect to see a sharp rise in price in the second half of the year".
Morgan Stanley and Barclays are also still bullish on gold in the medium to long-term, the latter predicting an average gold price of $1,716 an ounce this year, implying prices well above $1,800 an ounce in the second half of the year. Canada's Scotia Capital forecast an average gold price of $1,750 an ounce this year with prices tumbling to as low as $1,200 by 2017 and Canadian Imperial Bank of Commerce reiterated its call for $2,000 an ounce gold price next year, though they lowered their 2012 forecast from $1,800 an ounce to $1,700.
It could be a long summer for precious metals investors, but the fall and winter are shaping up to be an exciting time.
Additional disclosure: I also own gold and silver coins and bars.