Gold has lost around $30/oz. in less than one week as the US dollar charge continues. Last week’s FOMC meeting confirmed that US interest rates will continue to climb this year and next, while the Democrats’ victory in the House of Representatives is being taken as a USD positive so far, as it makes US President Trump more accountable for his actions. The precious metal was also unable to pick up a risk-off bid after US and Asian stock markets crumbled overnight on tech – mainly due to Apple – and worries that US-China trade wars may escalate.
Apart from the above mentioned acts, the way things are going- default concerns and inflation expectations are rather low by historical standards. As a result, financial markets could take a hard hit if investors ever wake up and demand a higher price for accepting credit and/or inflation risk. Such a scenario could make holding gold a particularly interesting option.
The recent weakness in gold is not over. In fact, we are worried about another leg down getting underway. While some believe that gold is moving to the bears there are some players in the market who still believe that gold prices will rally in the near future. Long term investors and speculation are making a shift from a bear to a bull market. Their belief is strongly supported by a few factors which these market players expected to occur soon-
- First and foremost, the current gold price does not seem to be high and there is a lot of scope for recovery till it reaches its all time high
- In a risk-on scenario, there is a good chance that the gold price will move up
- Bargain hunting and weakness in equities, such as the sharp fall in U.S. stock market on are helping put a floor under gold during the metal’s recent slide. The fact that gold has not fallen further “is probably due to the correction on the stock markets, which has made gold attractive as an alternative investment
- Oiling of gold reserves is a clear indicator that central banks do not want to be dollar dependent. A gold driven economy will definitely raise the demand for the yellow metal and furthermore its prices.
- Gold is the only financial asset that’s not simultaneously somebody else’s liability. Hence the liking for this metal always remains high.
- With uncertain world financial assets, there’s an excellent chance there’s going to be a volatile markets and hopefully a one that favours gold.
Currently we see investors acting very calm in the market. Maybe they await a strong and concrete signal from the global markets to get back into action mode.