After an Initial Rally, What Weighed on Gold Prices This Week?
Gold opened the week just over $1,300, but fell mid-week below $1,290. By Friday, gold had made back some of of those gains to close up. More bellicose rhetoric from North Korea sparked the initial flight to safety. So what weighed on gold prices? There were a few different factors, and these were some of the key ones.
Chinese Golden Week Closes Markets All Week
China is responsible for an enormous share of the global gold market. It is the number one producer and one of the top consumers. This week, however, the Chinese markets were closed for Golden Week, a 7 day long holiday. Global demand was significantly lower with such a key player not trading, so this led to lower gold prices.
Federal Reserve Expectations
Last week the Fed announcement on bond holding reductions weighed on gold. Expectation of an interest rate hike – the probability is estimated to be at about 60% – to come in December are still keeping gold prices low. Although there are price and inflation targets that the economy is missing on that might make that hike less likely to occur, according to some analysts.
Stronger Dollar and Tax Talk
Gold also came under pressure from President Trump’s proposed plan on tax reform. The dollar index was up, and that caused gold (which is inversely correlated) to go down. By Friday though, gold came off of its six week low as the dollar came off of its six week high.
What this means for investors: Gold is correcting right now, and price dips like this are always an excellent buying opportunity. Corrections are normal and healthy in any market, and a pull back like this is certainly not the end of gold’s run.
Silver also showed some pull back this week along with gold. The pattern was similar, with silver opening at $17.10 and closing just shy of $17.
Gold Price Pull Back Is Following a Bullish Retracement Pattern
The gold bull market that started in December 2015 is certainly not over. Gold has beat the S&P so far this year in overall performance, and it has hit historic highs. At $1,281, gold prices are now sitting on the 50% retracement level. It is a healthy sign in a gold bull market when gold retraces in this pattern.
What this means for investors: Although there are still elements that weighed on gold prices this week, investors continue to see excellent prospects for gold. Listen to this video for more, and why Dennis Gartman sees more room to run in this bull market. Trouble seeing the video? Click here for the direct link.
Bitcoin Trading Crack Down Will be Good for Gold
I’ve written before about the merits of safe haven gold versus cryptocurrencies and bitcoin. This week, the Chinese government further clamped down on bitcoin trading, and South Korea joined in the clamp down on ICOs (initial coin offerings), leading to a steep drop in bitcoin. Governments and central banks have little regulation over it, and its massive upswing is raising a lot of questions about its governance.
What this means for investors: This year, bitcoin passed gold in price for the first time ever. Many are seeing it as an alternative currency in a similar way that gold is. However, the strong opposition it is facing from governments could mean further crack down on trading. This could move investors back into gold, which would boost demand and price.
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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