Gold Price Near Several Month Lows; Is this a “Dip” For Buying?

Wednesday, November 16, 2016

fine gold

With the presidential election unexpectedly sending the Dow Jones Industrial Average up to new highs over the past week, it’s no surprise that gold, often seen as a hedge against the stock market, hasn’t been performing so well. In fact, a report by the Wall Street Journal just the other day put gold at a five-month low early Monday.

Early returns on Tuesday morning haven’t been spectacular in the other direction, either. This leaves some choices for gold investors. Is it time to buy stocks that are headed upwards, as it seems, or does the current price of gold only represent yet another “dip” that masks a buying opportunity in plain sight?

Why Has Gold Come Down So Much?

Regular readers of this space will not that there hasn’t been over-the-moon optimism for the price of gold of late. But that doesn’t mean we foresaw the weakening of gold to this extent, either.  What’s going on here? Why has gold come down so much?

The Wall Street Journal cites a stronger dollar as one of the primary culprits. Gold, priced in dollars, will almost always be worth less in dollars as the American currency moves up. The Wall Street Journal also cites some concern that the Federal Reserve will raise interest rates once again, come December. As we’ve noted in the past, there may be some reasons to be skeptical about the former. But the stronger dollar is certainly a leading indicator as to the reasons behind gold’s dip.

Will Gold Be “Just Fine,” As A Hedge Fund Manager Suggests?

After sinking to several month lows yesterday, early trading in London suggested that gold doesn’t have very far to move in subsequent days, according to UK’s The Week. But there may not be too many reasons to fear about gold, according to The Week, who talked to Hedge Fund Manager Alex Merk. “Gold will be just fine,” The Week quotes Merk, who cites the opinion that the Federal Reserve will be “behind the curve.”

That means that anyone watching the news will want to see what the Federal Reserve does in December as an indicator as to where gold may be positioned in 2017. Keeping the rates where they are could mean more unpredictability, and even potential for gold growth. Raising interest rates would potentially increase the bond market’s demand away from gold.

Is It Time To Lose Confidence In Gold?

Those with long-term confidence in gold may not like to see the yellow metal flirting back with the price of $1,200 per troy ounce again, but the truth is that gold may indeed be in a relatively short-term dip. Don’t expect to see a sharp rise in gold prices unless investors pour their money back into the metal, of course, driving up demand, but remember that gold is not always an investment whose arrow points straight up, either. Whatever you think of Donald Trump’s positions on the economy, this short-term dip may be an encouraging entry point for those who believe in gold’s prospects.

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.