Guest post from Paul Somerfield
The role of gold as a safe-haven investment is one of the fundamental principles of modern markets and it seems as if recent movements have once again confirmed this fact. The price of December gold futures rose to $1,279.40 dollars per ounce; the highest level since early June. During this same time, the cash value of gold has likewise increased by 6.2 per cent. Both of these observations could be great news for medium-term investors and these rates may very well be indicators of a more bullish gold market. What are some of the underlying factors which have caused such gains?
Tepid Consumer Spending
One of the most important influencing factors in regards to the price of gold involves consumer sentiment and spending. This is generally seen as a broad snapshot of how an economy is performing. It should also come as no surprise that spending within the United States will have a decidedly profound impact upon the valuation of this yellow metal. Recent figures have shown that spending only increased by 0.1 per cent in June. This is actually the smallest increase witnessed so far during 2017. Thus, some market makers are wary about the medium-term status of the domestic economy.
The Question of Federal Reserve Interest Rate Hikes
There has been a fair amount of speculation as to whether or not the United States Federal Reserve will enact an interest rate hike. Any such hike is normally closely tied into inflationary figures. However, softer inflation has pointed to the well-founded observation that the Federal Reserve may postpone any rate increases for the time being.
A slower pace of rate increases has historically tended to support the value of precious metals and there is no doubt that these latest observations have played an important role.
A Rising VIX?
One of the most recent news stories involves the Dow Jones closing above 22,000 points for the first time in history. Although this is supposedly good news and a sign of a relatively strong domestic economy, some are concerned that the CBOE Volatility Index may be in for a reversal in the near future. It is important to point out the inverse relationship between the VIX and index values. Still, any sudden increases in the VIX index will likely cause some investors to pull their money out of the open markets and to place their funds into safer havens.
The Trump Dilemma
One point that cannot be stressed enough is the instability associated with the White House. As the Trump administration continues to flounder and as officials seem to be replaced on an almost daily basis, some are questioning whether or not the president can deliver on many of his other promises put forth during the election campaign.
It is also important to point out that politics could also play a role in the price of gold; particularly if tensions continue to rise between the United States and Russia. Rumors of a so-called “trade war” may further exacerbate this situation. Although more rhetoric than reality at the present, the possibility of protracted political instability may help to support gold prices.
The Other Side of the Coin
Not all analysts believe that gold will remain bullish indefinitely. The traditional overhead resistance of $1,280 dollars is approaching and there could be a reversal soon. Regardless, the long term trend is strongly upward due to continually devalued fiat currencies.
The coming days will be interesting in terms of gold prices. Those who hope to keep abreast of the latest news should employ reliable online resources such as CMC Markets. Gold may indeed have regained its luster to the average trader.
Thanks to Paul Somerfield
The Deviant Investor