Stock Market Has One of the Worst Weeks since 2008, But Gold Remains Quiet For Now
Volatility was the word of the week. The Volatility Index went as high as 40 points Friday before closing around 30 (last week it was around 17). The volatility in the stock markets is becoming more pronounced, especially following last week’s shaky week. Once again this week – and to a greater extent – the markets experienced wild falls and fluctuations. By Friday afternoon, the Dow regained some of the lost ground in the afternoon, but it had its worst week in two years. It was a similar story for the S&P and Nasdaq. In fact the Dow traveled 20,000 points this week. Furthermore, on Monday it experienced its worst daily point drop on record.
On Friday, the stock market was on pace for one of the worst weeks since 2008, but gold remains quiet at the moment. Gold closed out the week just shy of $1,320, which was down nearly $20 from the week’s open. Silver fell too just over 20 cents over the week. This seems counter-intuitive for metals, given the heightened stock volatility over the past couple weeks. You would expect some safe haven demand to pick up.
However, there were other forces weighing on gold this week. It was under some pressure from expectation of rising interest rates and a stabilizing dollar. Some analysts also estimate that there was gold selling this week as investors sold some of their holds to meet margin calls on leveraged equities.
What this means for investors: It looks like the stock market’s bull run is come to a head, as the stock, bond, and currency markets have been flashing warning signs of for a while. Investors are preparing for more volatility ahead with rising inflation expectations and rising bond yields.
With rising inflation, expect gold prices to rise as well. Despite gold’s quietness this week through the upswing in volatility, the future is looking good for gold. Long term, a dropping stock market is going to push investors to the safe haven buy in gold. Gold did not drop below $1,300 on the firming dollar, which indicates it has support. Gold is up 6% from its December lows. If the market volatility has you concerned, look for gold buying opportunities as a hedge.
Foreign Gold Buying Continues to Climb on Volatility Expectations
The global equity market volatility is just one reason why foreign gold buying is going to continue to rise. Russia has been buying gold at record pace for some time now. China, the second largest economy in the world, is the top global buyer, and India is also becoming a significant player in the global market. The latest Bank of England policy signals that U.K. investors should think about buying gold now. The BoE voted to keep rates unchanged, and analysts are worried that at this rate, rates will not raise fast enough to offset inflation. The central bank is acting out of line with its methodology and previous policy outlines.
What this means for investors: Gold generally gets an additional boost at the beginning of the year from traditional Chinese New Year gold buying. However, as volatility ramps up, the speed of buying is going to continue.
Cryptocurrency Rout Eases
The cryptocurrency markets have been experiencing even more volatility lately than the stock market did this week. With the focus on the stock market drop this week though, cryptocurrencies had a bit of a breather. More and more analysts though are coming out against the concept of it as a currency, despite some of the other practical applications for blockchain technology. With volatility fears plaguing the stock market now though, it appears investors are not leaping to put their money into the even more volatile cryptocurrency markets.
For more on what this means for investors, check out the link below…
Read our latest original article to see what the gold investor should know about cryptocurrency
Bitcoin and cryptocurrency are undoubtedly a hot topic right now. How exactly the virtual, unregulated “currency” works though can be complicated to understand. Check out our original article that breaks down bitcoin mining, blockchain technology, and their future implications for gold, money, and society.
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