Gold Rally Met Resistance This Week and Prices Dipped – Buying Opportunity?
A couple weeks ago gold hit a year high, but the gold rally met resistance this week and prices dipped. Gold fell most of the week, but was able to turn positive late Friday to close out the week just under $1,300. Silver met similar resistance and closed just shy of $17. Some of the things dragging on metals prices were a Fed announcement and a stock market rally. President Trump’s strong UN speech on North Korea and the reactions added some market fear, but geopolitical news was otherwise relatively quiet this week.
What this means for investors: Some investors are getting worried that metals are showing too much volatility right now, however it is not an unusual move in the metals market. Furthermore, until this week, gold has outperformed the stock market for 2017 at 14% to 13%. This is a good case for the long-term gold investors moving forward. As we have suggested before, pull backs like the one this week are a strategic time to allocate more metals in your portfolio. Although it is hard to say when exactly, there are certainly chinks in the economic outlook right now that will prompt a correction the markets and dollar index and make gold a top investment. It’s why buying ahead when prices are still low is key. This may be one of the last such pull backs, making it an especially strategic buying opportunity.
Fed Says No More Easy Money
The Federal Reserve announcement was the biggest event the markets looked to this week for guidance. Janet Yellen’s tone was slightly more hawkish than anticipated. Following on previous announcements, the Fed chair announced that the Fed would reduce bond holdings and leave interest rates unchanged for the time being. She left open the possibility still for a December hike.
What this means for investors: In the past year, gold has had mixed reactions to rate hikes. Generally, since gold is a non-interest bearing asset, higher rates mean lower gold prices. If the economy doesn’t seem it can handle the higher rates though, gold goes up on safe haven demand. This week’s announcement seemed to weigh on gold prices and give the dollar index a boost. Yellen also downplayed Q3 economic weakness that will follow the hurricanes that hit the southern U.S. this season. There are further economic reports to digest too before December, so it is not necessarily a for certain rate hike.
The Stock Market Hits New Records Despite Overvaluation
The stock market is continuing to hit highs. But even optimistic analysts are seeing downturn in the next several months. The markets are overvalued right now (in a strikingly similar fashion to the markets in 1929 before the crash), but investor optimism is propping them up for the time being. Some analysts are seeing gross overvaluation in bonds and equities that could set the more bullish investors up for a nasty shock.
What this means for investors: The correction probably won’t hit tomorrow or in the next few weeks, but the stress signs are certainly there. Market psychology still seems to be seeing upside for now, but corporate stock buy back is playing a significant role in market valuation as well. It is posing a serious and underestimated risk to the equity markets. Additionally, the likelihood for market-impacting geopolitical events is increasing.
Gold is Money, not Bitcoin
Last week we discussed the bitcoin bubble that could send investors back to gold. Top fund managers are continuing to warn of a bitcoin bubble and favoring gold instead. It is certainly true that some bitcoin investors have made massive returns on investors. Many of these investors are attracted to cryptocurrency because of the current lack of central bank control and government regulation over it.
What this means for investors: Gold is real money, and it holds value beyond the spot price. While other investments can likely make higher returns in a short time, gold is the ultimate long-term safeguard for your money. Allocating part of your investment into precious metals can protect against bubbles and corrections in other assets. Gold and silver will always have value.
10 Reasons to Own Gold
We’ve listed the reasons that gold is approaching a break out point, but here are some more specific events to watch for precious metals going forward:
- Monetary policy and interest rates
- North Korea missile tests and other geopolitical events
- Political deadlock in the U.S.
- Price dips in metals that provide advantageous buying opportunities
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