I have a special place in my heart for the gold and silver markets. In the 1980s and 1990s, I was a trader for a major international bullion dealer with trading offices in New York, London, and Hong Kong. I eventually became the head trader and manager of Philipp Brothers, Salomon Brothers, and Phibro’s precious metals trading business. Gold and silver are commodities like no others. While they are metals, their precious value means that have a long history as a means of exchange. Gold and silver were money long before the dollar, euro, and other currencies in circulation around the world today existed.
The dollar is the world’s reserve currency, so it is the benchmark pricing mechanism for most commodities and gold and silver are no exception.
On Monday, December 3, in the wake of the positive outcome of the weekend pow-wow between President Trump and President Xi on trade, the dollar index moved a bit lower. The Chinese had been devaluing their currency by slashing domestic interest rates as part of a response to U.S. protectionist measures. The weaker yuan boosted the value of the dollar in an environment where U.S. rates have been on the rise. On Monday, the dollar moved lower which provided support for the prices of gold and silver.
As the daily chart highlights, gold closed on November 30 at $1227.80 and traded to just over the $1240 level on December 3 as the dollar index slipped back below the 97 level.
Silver ended last week at $14.25 and traded to a peak of $14.645 on December 3 as a lower dollar, higher gold, and the prospects for a settlement to the trade dispute lifted most commodities. Copper, crude oil, soybeans, and other agricultural products, and most commodities prices moved higher on Monday. When it comes to the precious metals, the month of December has been a rough time in 2015, 2016, and 2017 as increases in the Fed Funds rate at the final FOMC meeting of the year weighed on prices and took them to seasonal lows. The jury is still out as to whether the precious metals will suffer the same fate during the final month of this year.
While history tends to provide a guide as to the futures behavior of prices in markets across most asset classes, trends and patterns are made to be broken. Gold rejected its low in mid-August this year, and the nearby futures contract has not traded below $1996.60 since early October. Silver moved to a low of $13.86 in mid-November, but it rejected prices below $14 and moved back to the middle of its trading range at just under the $14.50 level as if the end of the first trading session of December. Both metals face a rate hike later this most and a history of selling in December. However, the recent price strength could be a sign that this month will not follow the pattern of trading over the previous three years.