Gold Prices Struggled This Week and Saw a Sell Off
It was a tough week for metals after a positive week last week. Gold prices struggled and dropped under $1,300 as a huge sell-off took further toll on prices. Silver was down this week too, but posted gains on Thursday. Gold was struggling against a stronger dollar index, and hit its lowest point so far this year. On the geopolitical front, not a lot happened initially to boost safe haven buying, although gold did get some support from disagreements between North Korea and the U.S. over the upcoming, historical meeting in Singapore next month.
Gold rebounded though Friday on global equities volatility. Investors were worried over possible Italian debt problems and elections. Italy’s next government pledged increased spending, which could trigger a worse debt crisis than the Greek crisis.
A Stronger Dollar Kept Gold Down, But There’s Still an Upside
Rising rates and an upbeat dollar kept gold down this week, but gold has been on an upward trajectory this year. One reason is because of increased volatility. The CBOE volatility index, or “fear gauge,” has surged as high as 50 this year, and has been trading mostly around 20-25 range. Over the past couple years, it was trading around 9, so fear is certainly creeping back into the markets after some historic lows.
What this means for investors: Volatility is rising slowly across all asset classes, and as it does, gold demand will pick up. Money managers, including Ray Dalio, are maintaining bullish positions. Because of this, look at these price dips as opportunities to buy gold “on sale.”
Sanctions on Iran, Russia are Bullish for Gold
Last week the U.S. nullified the Iran deal that was a trademark of the Obama administration. Along with the nullification was the imposition of sanctions against the Islamic republic. The news sent oil prices soaring, and gold rallied alongside.
What this means for investors: Sanctions and trade wars weigh heavily on fiat currencies. It is one reason that central banks like to hold so much of their reserves in gold. The Russian and Chinese central banks, for example, have been raising gold reserves at very high rates in recent years. Russia has been sanctioned by the U.S. and Europe ever since its annexation of the Crimea in 2014, and sanctions have only increased. Gold, however, is fungible, and holds value, so while sanctions put the brakes on a nation’s economic growth, gold offers a safe refuge of maintaining wealth.
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