Gold Broke Out Over Its 50-Day Moving Average This Week
Closing out the week just over $1,290, gold broke out over its 50-day moving average this week. With gold making its second weekly gain, it was building on last week’s safe haven rally. It opened the week at $1,277. Silver opened at about $16.95 and ended the week at about $17.20. Gold has been meeting with resistance at the 50-day moving average of about $1,292, so it bodes well for gold that it pushed past it on Friday.
What this means for investors: Gold was at a one month high on Friday, and it is preparing to test the next resistance level. Breaking the 50-day average signaled an important psychological point for investors. Gold had been trading in a narrow margin for some time now as investors waited for another bullish sign, and this could be it. The next test for gold is the medium-term resistance at $1,310.
Flattening Yield Curve Sending Red Flags
A key thing to watch right now is the yield curve. The yield curve flattened this week, which historically is a harbinger of looming recession. The curve flattens when the spread shrinks between short and long term bonds, an when this happens, it makes gold more attractive because opportunity cost goes down.
What this means for investors: Some Wall Street analysts are arguing that the flattening curve isn’t an indicator of an imminent recession this time. However for decades, there has always been a correlation between the flattening curve and recession. It is going to be an important thing to watch and prepare your portfolio for if the historic trend continues.
Stock Market Bulls Turning Wary
The stock market had a sharp pull back this week that helped shore up gold falling to its lowest level in months exactly a year after the historic Trump rally really kicked off. The Dow Jones fell as many as 167 points on Wednesday. Gold and silver prices also popped on the weaker dollar index, as the Federal Reserve appears to be aiming to tighten monetary policy. One of Wall Street’s most outspoken stock market bulls is now warning of a major pull back. Jeffrey Saut sees a 5-10% pull back coming for the markets any time.
What this means for Investors: A weaker dollar always boosts gold, as does a falling equities market. Volatility is increasing in the markets with these fluctuations and turning the bulls into bears. If the stock rally is exhausted as some analysts are predicting, investors will be making a significant shift into gold. Keep an eye on silver too. It moves more erratically than gold, but will be driven by the safe haven buy as well.
Tax Reform and Geopolitics
There were many additional factors driving gold and stocks this week. The U.S. House tax reform bill passed on Wednesday. This was another key market-impacting event. Although the House bill passed and the Senate bill has advanced past the draft phase, the outlook for the latter passing looks less certain. There are discrepancies between the two bills that must be resolved though if it passes.
Furthermore, there were geopolitical rumblings that fueled some safe haven buying. Venezuela defaulted on its debt payments this week, and analysts are warning that it could be one of the messiest defaults ever. Tensions in the Middle East over the Lebanese prime minister’s resignation continue to add uncertainty as well.
What this means for investors: The markets have had mixed reaction to the tax reform proposals. Initially stocks rallied because of proposed corporate tax cuts, but with the possibility of these being delayed, the markets turned down. The Middle East turmoil is going to keep raising demand for gold as well.
Stay Connected to the Markets. Subscribe Now to Get the Gold Market Discussion Delivered Every Sunday Directly to Your Inbox!
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.