In an ominous turn of events, Hurricane Irma rapidly gathered momentum to become a Category 5 storm with raging winds in the region of 185 mph. As it bears down on the Florida coast line, the US is bracing for maximum impact.
This Act of God has the capacity to cause hundreds of billions of dollars in damage, and mass casualties across the board. During uncertain times, investors tend to shift their funds from traditional options like equities towards safe-haven assets like gold, platinum and silver.
In recent months, the weakening of the USD – evident in the 10% declines in the DXY for the year to date – has been brought upon by decreased confidence in Trump Trade, and a gradual strengthening of other currencies like the EUR. The Fed has held back on further rate hikes until it is confident that the US economy is on track to meet its 2% inflation target and is fundamentally sound.
In the interim, the price of gold – the safe-haven asset of choice – is steadily rising. Heading into mid-September, gold was trading around $1,344 per ounce, for a 30-day gain of 4.78%, and a 6-month gain of 10.38%. While this pales in comparison to the performance of gold in 2015, and early 2016 (20% + gains), it is nonetheless a resurgence in the performance of this precious metal. Gold lost favour when Trump was elected, since equities markets were booming. Currently, the state of Wall Street markets is as follows:
- The Dow Jones Industrial Average is down 1.53% over 1 month, but up 17.56% over 1 year
- The NASDAQ Composite Index is up 0.20% over 1 month, and up 21.06% over 1 year
- The S&P 500 Index is down 0.72% over 1 month, and up 12.66% over 1 year
What are the Experts Saying About Gold?
Leading gold trader, Montgomery Blythe of Wilkins Finance believes that the current trend with gold is likely to continue over the short-term,
“Based on the fundamentals, we know that the USD is on the back foot and the EUR is on the ascendancy. That the GBP has gained ground against the USD in recent days is also notable. Trump cut a deal with Democrats on the budget, and buckled – against Republican wishes – to raise the debt ceiling. Ongoing tensions with North Korea remain in sharp focus, and additional ballistic missiles testing and provocation will certainly keep traders plenty interested in gold. It’s important to pay attention to the rise in the value of cryptocurrency – notably Bitcoin alongside the rising the price of gold. We have seen a close correlation between these two financial assets in recent weeks and it is largely thanks to volatility in the Korean peninsula that gold is holding above the critical $1300 per ounce level. Here at Wilkins Finance, we are confident that bullish sentiment with gold prices will continue, as evidenced by the net long positions on the precious metal.’
The gold price recently retreated somewhat against the EUR after the ECB retained negative interest rates and asset repurchases valued at €60 billion per month. Global inflation levels remain subdued and gold is still the safe-haven asset of choice for many investors. Unfortunately for gold bugs, most of the bullishness is already reflected in the current gold price. If investor excitement abates, gold could retreat and hold around the $1,300 per ounce level. An important event occurred with the world’s biggest gold ETF – GLD recently. A massive outflow of cash took place, even as gold reached a 1-year high. Investors will do well to monitor the performance of GLD, major gold mining stocks, and speculative sentiment for clues as to the future direction of the precious metal.