Gold Price Aggressive Move To The Upside!
Jul 1st 2019
Gold Price
Gold bullion price have begun to skyrocket higher in recent weeks. We have had one of the biggest upside moves in gold than we have seen in years. Many people are asking why such a move now? Then again, it seems that all is rosy in the economy. GDP has been good, houses are selling, the stock market is making new highs right? All of this is true, however not all is as rosy as it seems. With that said, let's explore the many underlying factors that are attributed to this substantial move to the upside.
Gold Price Technical Analysis
From a technical perspective, gold was long overdue for a breakout to the upside. Over the last 4-5 years, gold has continued to make higher lows, or in other words every time gold retreated from a run to the upside, the bottom that was made had consistently been higher than the prior bottom. This is an extremely bullish sign for gold. Furthermore, in the two year chart in gold, a reverse head and shoulders pattern formed. A head and shoulders pattern in gold would usually signal that it was topping out and that a major reversal in trend was occurring, with significant downside risk possible if the neckline support was broken. However, what formed in the two year charts was a reverse head and shoulders pattern. As you can guess, that is a very bullish sign for gold. A breakout above the neckline would signal a major rally in gold and potentially a $200 or more move to the upside. As we saw, gold broke above and closed above the neckline on tremendous volume, thus confirming a breakout to the upside and reversal of a downtrend. Additionally, looking at gold from a longer term perspective, it looks as if the latest pullback in gold, that was experienced from around $1,900 an ounce to as low as $1,040, was a long term healthy correction. When looking at the 20 year chart in gold, we had an impressive run and a pull back was necessary in order to keep the longer term bull market in gold in tact.
Lower Interest Rates
At the recent federal reserve meeting, boards members signaled that they would be accommodating with their policy. In other words, the federal reserve would cut interest rates if the economy continued to decelerate. Many investors interpreted this as one thing, interest rates would eventually be cut once again and make their way back to zero. In turn, a loose money policy or low interest rates are typically associated with higher gold prices or increased demand as other interest bearing investments are no longer as attractive.
Inverted Yield Curve
Many months ago, the U.S. yield curve went negative, or in layman terms, short term interest rates were higher than long term rates. Specifically, the 2 year, 5 year, and ten year yields all became inverted in respect to the 3 month yield. Over the last 50 years or so, any time the yield curve became inverted a recession was imminent or followed in the coming months or years. Many see an opportunity in gold as a hedge for a slowing economy or one that is going into recession. Furthermore, many investors expect the government to increase stimulus spending and the federal reserve to maintain loose money policy in order to stem a future crisis.
The above reasons have caused a lot of buzz in the precious metals industry and has resulted in an increase in demand for gold and silver bullion products. Only time will tell what is to come next.
*These are solely the opinions of Bullion Shark, LLC and are not intended to be used as investment advice. Please consult a financial adviser before investing.
How does consumer sentiment and behavior impact gold prices?
Consumer sentiment and behavior have a profound impact on gold prices, often acting as a barometer for the precious metal's market movements. During times of economic uncertainty or when inflation fears rise, consumers and investors alike tend to flock towards gold as a safe haven asset. This increased demand for gold as a form of financial security can drive up its price, as gold is seen as a stable store of value that can protect wealth against currency devaluation and volatile stock markets. For instance, in periods of significant economic downturns or when confidence in government policies wanes, an uptick in gold purchases by consumers seeking to safeguard their investments can be observed. This behavior underscores the psychological and emotional factors that can influence gold's market value beyond just its fundamental supply and demand dynamics.
What role do geopolitical tensions and global events play in the fluctuation of gold prices?
Geopolitical tensions and global events play a critical role in the fluctuation of gold prices, often serving as catalysts for swift changes in the market. Instances of political instability, international conflicts, or economic sanctions between countries can lead to increased uncertainty in global markets. Such uncertainties drive investors towards gold, perceived as a safe asset that can hold its value in times of crisis. For example, announcements of trade wars or military conflicts can unsettle financial markets and depreciate currency values, prompting a surge in gold investment as a hedge against potential losses. This response to geopolitical events highlights gold's status as a refuge asset, with its price often moving inversely to market confidence and stability.
How do fluctuations in the US dollar's value affect gold prices?
The fluctuations in the US dollar's value have a direct correlation with gold prices due to the dollar's role as the primary reserve currency in which gold is denominated. When the US dollar weakens against other currencies, gold becomes cheaper for investors holding those currencies, leading to increased demand and higher gold prices. Conversely, a strong dollar can make gold more expensive for foreign investors, potentially dampening demand and lowering gold prices. This dynamic relationship means that trends in the US dollar's value can significantly influence gold's attractiveness as an investment. For instance, during periods when the Federal Reserve adopts policies that lead to a depreciation of the dollar, such as lowering interest rates or engaging in quantitative easing, investors might turn to gold as a hedge against the diminishing purchasing power of the dollar, thereby driving up its price. This intricate interplay between the dollar's strength and gold prices underscores the global nature of the precious metals market and the multifaceted factors that influence its movements.
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