Gold Finished 4th Of July Weekend With Stumble

Wednesday, July 5, 2017

gold blocks

Though the price of gold showed a tremendous amount of resistance in the mid-$1,200 per troy ounce range for a long time this month, it finally broke through over the Fourth of July weekend with a stumble down to what is currently around $1,220 per troy ounce. Gold investors are left scratching their heads, and we’re left trying to make sense of this: what exactly happened, and do those market events serve as evil omens for the future price of gold during the summer months?

Rounding Up The Usual Suspects

To make sense of the dip, we look at the most common suspect: the U.S. dollar index. Long-term gold investors won’t be surprised to see that the index has been performing well as of late, moving up from recent Friday lows and nearing 96.5 points. Even so, it’s possible this doesn’t explain all of gold’s stumble, as a zoom out to one month of U.S. dollar index prices shows the strength is relatively low compared to its first reactions to last month’s Federal Reserve announcement of another interest rate hike.

The index is certainly something that bears watching anytime we talk about gold, but is there more to the story of gold’s current price?

MarketWatch: Numerous Economics Factors At Play

MarketWatch sees more to the story, pointing out a number of factors. Noting that the U.S. dollar is relatively flat compared to its recent strength, these other factors include higher yields as international central banks have had a “hawkish” tone. Higher yields can mean another place for investors to put their stock market hedging money, which in turn drives down demand for gold and diminishes its role as a chief hedge against market corrections.

But the causes of these yields going up are actually that investors moved out of bonds thanks to these “hawkish” postures by the central banks. This in turn makes bonds more attractive as they generate more money for the investment…with gold’s returns being anything but guaranteed. It’s a strange headline when lower demand produces price spikes in bonds that end up potentially hurting gold, but that appears to be the case, at least in recent news.

Gold’s Performance To Date

How is gold performing for the year? Since we just ended the half-year mark, it seems only appropriate to look at gold’s performance and take recent headlines with a grain of salt. Gold was up 8% thus far, which in turn makes it an extremely high performer among different asset classes. Growth of that sort is hard to get outside of bull markets, which in turn has helped keep the price of gold up.

The trend as of late, however, has been that gold is correcting down to lower prices as investors see opportunities elsewhere. Will that trend continue? It’s hard to see bond yields remaining high and driving money out of gold, and the U.S. dollar index has plenty of movement in either direction to warrant description as less-than-predictable over the next year. Whether or not July will represent a buying opportunity for gold will depend on multiple factors, which makes it even more difficult to predict.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.