Gold Price Dips Back Under $1,200: Is It Time To Worry—Or Invest?

Friday, November 25, 2016

gold market

Last week in this space you read about how a strengthening dollar spelled weakness in the price of gold. This week, that premonition is coming true as gold has now dipped under $1,200 for the first time since February of this year. The nine-month low brings gold back down to earth after what had been a stellar 2016 run.​

As of this writing, gold is down to $1,184.50, a full 2% dip off of its starting price for the day.

This leads to two important questions: is it time to worry about the price of gold, especially with potentially looming interest rate hikes, or is the price of gold another “dip” that represents an opportunity for investors?

Why The Price Of Gold Has Declined So Quickly

Gold often acts as the hedge against uncertain markets. But with the Dow Jones Industrial Average breaking the $19,000 mark for the first time, the need for a hedge seems low.

That’s not the only reason the price of gold has declined, however. Even more important is the strength of the U.S. dollar, as Mining.com notes. The “resilient dollar extended its rally” recently, with stronger economic data coming through the pipeline and the high potential for the Federal Reserve to announce interest rate hikes in mid-December.

If the current economic course continues, investors should expect that gold will remain stagnant and may even dip further.

Optimism For The Markets; Pessimism For Gold

One of the reasons the stock market is doing so well is optimism in the markets that a new Trump presidential administration could be good for economic growth. Business Insider also sees “strong U.S. data that has supported the case for an interest rate rise.”

The potential for a rise in interest rates would mean that investors could potentially find other safe vehicles for their cash than mere gold. This decreases the demand for gold and could put even more downward pressure on gold prices for an extended period of time.

Watching The Economic Data In December

For more clues as to where gold may be headed in 2017 after a strong run in 2016, we’ll have to turn to December. By far the most important watermark for the economy as a whole and for gold individually will be in mid-December, when the Federal Reserve is expected to announce its intentions for interest rates. With strong economic data coming through the pipeline, it’s believed that this is an opportunity for the Federal Reserve to push interest rates up another tick, which is generally bad for the prospects of gold prices.

Long-term bulls on precious metals may see this as a temporary setback, but given all of the optimism in the market and the potential for 2017 to change expectations, it may be a while before we see movements in gold like the one we saw after the Brexit vote. Of course, the world stage can be difficult to predict, which means the price of gold is, too. One thing is clear: a new stage of expectations is being set for 2017, and gold investors will want to take note.

 

 

 

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.

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