Gold has given investors a tricky ride of late. The slide that took the price right back carried with it some unlikely victims. Albermarle & Bond, the upmarket pawnbrokers, saw its shares suspended as gold fell in value. Not that this is the first time this company failed. Having topped 400p at around the time gold peaked at $1,900 less than three years ago, it has been quite a fall from grace.
Albermarle expanded rapidly on the back of a rising gold price, endeavouring to cash in by offering to buy gold jewellery. But competitors moved in and it is most unlikely the shares will have any value now that administrators have moved in. Ironic, really, as gold has staged something of a recovery.
The price has corrected to a little over $1,300 but the signs are events are moving in the metal’s favour. There is evidence that gold ETF outflows have moderated, doubtless as a result of safe haven buying as the crisis in Ukraine deepened. Demand from China is strong.
Then there are the technical indicators much used by gold buffs. The suggestion is that gold is close to breaking its moving averages on the upside, hinting at some impetus for a sustained recovery. How far this might take the price is far from certain but any further deterioration in the situation out East could stimulate more buying. The fact that non-commercial long positions on Comex are at their highest level for over a year adds support.
One technical analyst of my acquaintance believes gold is likely to mirror the performance of the major equity markets. So a rising gold price should take place against falling share values.
There was little sign of this initially last week, with the FTSE 100 index shrugging aside the prospect of Russian tanks venturing further into Ukraine and staging a useful recovery. The tougher line being taken by the G7 and Russia’s apparent softening of attitude provided the trigger.
Of course, should Putin decide the boost to his popularity that the annexation of Crimea achieved needs underpinning at the expense of economic wellbeing, then all bets are off. Further military action in the former Soviet republics will surely reverse a positive equity trend.
Fortunately, other news has proved a little more positive. The Office for Budget Responsibility has upped its forecast for domestic economic growth, expecting the UK to achieve a rise of 2.7 per cent this year. Company results have lent weight to the market’s rebound, with a number of leading companies exceeding analysts’ expectations.
But sentiment remains fragile, even if a risk-on approach seems to prevail for the present. These are difficult markets in which to take bold decisions as events could move sentiment either way. If the Russian president does up the ante, then about the only positive message that might emerge would be a postponement of interest rate rises as central banks try to head off any economic downturn.
Interestingly, one sanction being mentioned is the release by America of oil stocks on to the world market, driving down the price and hitting Russia where it hurts most. As gold often tracks the oil price, added confusion seems likely.
Brian Tora is an associate with investment managers JM Finn & Co