Gold Hits Five Week Low as Stocks Keep Hitting Highs

Wednesday, June 21, 2017

Although gold has enjoyed high prices relative to its historical performance, there’s no denying that the roaring of the stock market as it sets new highs on what seems like a regular basis has had a tremendous effect on how investors view the economy. In essence, gold’s prices have sunk while the Dow Jones Industrial Average has set new highs.

But is that all to blame for gold’s new five-week low? The yellow metal stands below $1,250 per troy ounce this morning, which could suggest pessimism for precious metals. But it could also suggest that there are other factors putting downward pressure on gold—factors that are worth exploring here.

U.S. Dollar Showing Signs of Life

A stagnant U.S. dollar in recent weeks has contributed to gold’s performance as much as anything. This chart from MarketWatch of DXY, or the dollar index, paints a picture as to why gold hasn’t enjoyed a particularly stellar month:

US dollar chart

You’ll notice that the dollar index appears to be rebounding from its stagnation earlier in the month, perhaps due to the Federal Reserve’s announcement of a new rate hike. These hikes are well-documented as being bearish for gold and bullish for the U.S. dollar, at least in the short term. Just one week removed, we’re seeing the results from that announcement play out as the stock market continues to hit new highs.

Is It Too Early to Give Up on Gold?

If your mantra is “buy low, sell high,” then this certainly isn’t the time to unload your gold. If anything, we’re at a particularly strong intersection of high stock market prices and low gold prices that almost shout at investors not to make major moves based on just a few weeks of history.

The stock market this morning has thus far been uneventful, outside of the noise coming from the tech stocks which have helped drive interest, which has pushed the NASDAQ higher than, say, the S&P 500’s modest increase. What does this mean for gold? It means there’s a lot of action that has absolutely nothing to do with precious metals as we look at the end of this month. If anything, this appears to be an extended “dip” period for gold. The question is whether gold will continue going lower or not.

As Simple as a Rate Hike

Although it’s tempting to see the fact that gold has taken a little while to show its recent weakness, the truth is that this is all an extended reaction from the Federal Reserve rate hike. Forbes thinks so, pointing specifically to a chart that identifies when gold began having this reaction. If this is the case, then not much has really changed. Although gold prices have dipped again this week, it doesn’t mean that this is part of a new wave of bad news for gold—in fact, it’s part of the old wave. The 24-hour news cycle has done a lot to change the perception of time for commodities like gold. But as gold investors know, the timeline for this precious metal is much longer and requires a great deal more vision.

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.