Gold Price Finds New Traction on a Two-Week High

Wednesday, July 19, 2017

Gold prices hit a two-week high yesterday, finding its way into the $1,240-per-troy-ounce range. This marks a return to a price range that gold hasn’t seen since the beginning of the month, and puts it within striking distance of the prices gold was seeing before the mid-June Federal Reserve announcement that a new hike in interest rates was coming.

Has gold simply found a bottom, or is there something more going on that has sent investors flocking to the yellow metal?

U.S. Dollar Drops to 10-Month Low

To quote “Casablanca,” we’re rounding up the usual suspects. Chief among these is the strength of the U.S. dollar, so often inversely correlated with the price of gold—which, of course, is priced in dollars. Observe this chart, courtesy of MarketWatch.com:

US dollar chart

Of course, a direct correlation between gold’s prices and the weakening of the U.S. dollar isn’t obvious every single day. In fact, over the past month, while the U.S. dollar has generally weakened, we’ve also seen gold weaken before its most recent rebound. But what’s interesting here is that with the Federal Reserve tightening its policy in mid-June, the dollar continues to get hit. That may reflect lower confidence in headlines than most investors are willing to admit—which in turn, is good for the prospects of gold’s price.

More Gold Buying as Investors Worry about Equities

If the term “buy low, sell high” applies, it seems that the high prices of equities as of late has driven some investors to seek other ways to park their money. Economic Times of India reports an increase in the demand for gold industries, retailers, and even gold jewelry. The article further notes that a weak U.S. dollar is helping gold’s recent rise, even though the dollar has been weakening all month long—sometimes in conjunction with gold. Reuters has recently confirmed the increasing demand from India, which is often a large player in gold demand thanks to its large population and emphasis on gold.

This suggests an underlying lack of confidence in a stock market. With headlines pointing to a “lost year” despite new highs in the Dow Jones Industrial Average suggest that investor confidence is not nearly as high as the prices are. The idea of a post-election surge for the market seems to have run its course as investors are looking for new reasons to be confident in the wake of some gridlock on capitol hill.

Is Gold at New Footing?

The remaining question is whether or not this new price for gold—a two-week high—is going to be here for a while, or if gold’s standing is in flux. All indicators seem to be that gold’s price has more space to move. But it seems as though gold’s prospects change week-to-week, depending on economic news. That suggests an underlying lack of confidence in the economy as a whole, with each headline proving a hidden fragility, whether positive or negative. We’ll continue to watch the price of gold to see if it beats its two-week high.

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.