Gold Forecast: Do Uncertain Markets Boost the Chances for $1,300?

Monday, November 13, 2017

It’s been a rough business week for the Dow Jones Industrial Average. After one of the first significant drops in a while on Thursday—ostensibly over lack of confidence in the Republicans’ ability to pass a comprehensive tax cut plan—the Dow Jones has yet to gain back its value, with only minor movement as of Monday morning. Although the DJIA remains above 23,000 points and has plenty of cushion for any upcoming market corrections, the uncertainty in the economic headlines does lead some to ask: is now the time to consider gold?

Dow Jones tracking chart

Above: The Dow Jones was tracking well until the recent slip. Graph courtesy of MarketWatch.com.

Gold Performing Well with Tax Confidence Dropping

One of the major signs that gold might be due for a bull market of sorts? The fact that gold “rebounded” in this recent drop in the Dow.

The consensus seems to be that it was indeed the lack of confidence in the tax plan and Congress’s ability to pass it that is leading to drops out of the DJIA. Meanwhile, there is evidence that gold is picking up some of the scraps from this fallout, with the price boosting out of the mid $1,200 range and back up toward $1,300. That still leaves plenty of upward movement left—not to mention plenty of room in the headlines for change—but if Congress continues to lose any sign of progress in the coming months on this bill, it may be a better holiday for gold than it is for the stock market.

Watching the British Pound

Although the U.S. dollar is always the currency worth watching when it comes to precious metals, there’s no reason to ignore overseas currencies. The British Pound is making headlines thanks to instability in its political environment, including some members of Parliament calling for PM Theresa May to resign.

Some 40 legislators in Britain had agreed to sign a letter calling for a vote of no confidence, which puts them within range of making a formal challenge. Instability like this tends to be better for precious metals, which offer a hedge out of instable geopolitical headlines. Though these headlines won’t bear the same impact as they would if more relevant to the U.S. dollar, they’re still worth watching in the coming weeks.

Gold Volatility Low, But This is an Exception

Bloomberg notes just how low gold volatility has been of late, holding within a percentage of about 3.3 for the past month. Does this mean things are leveling off, and that gold is headed to a stable 2018? No one can make that prediction. Although it appears the geopolitical headlines have cooled off somewhat in later 2017 compared to the first half of the year, there’s never any telling which headlines will seize the markets next. That means that gold remains a strong investment for anyone looking to hedge out of the stock markets and find stability, even if the movements for now remain small within the precious metal markets—and in the markets as a whole.

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.