Gold Price: Some Movement With Doubt Lingering in the Stock Market

Wednesday, November 8, 2017

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The price of gold made an early jump on Wednesday morning, pressing as much as $10 per troy ounce ahead while the U.S. stock markets showed signs of lagging. Although the Dow Jones Industrial Average recently set another closing record as it flirted with 23,600 points, there has been some doubt in financial news, especially with a recent Reuters report that highlighted some issues with the much-publicized Republican tax plan. What does this mean for the prospects of gold’s price, and what’s happening in the U.S. dollar that could change that?

Gold Experts Watching the News for Interest Rates

As Reuters reported, an analyst for Societe Generale Robin Bhar said that an expected December rate hike from the Federal Reserve is currently “baked” into the market expectations. That means that even with an interest rate hike occurring, there likely wouldn’t be any sudden movement from the markets, which already sees the rate hike coming.

But the recent news of a potential delay of the implementation of the Republican tax plan—Reuters notes that Senate leaders are currently debating a delay due to Senate rules—has sent the U.S. dollar index a little low. Bhar believes that the tax plan, if passed, could potentially spell more rate hikes for the U.S. next year, but if the delay does occur, the Fed might be more “relaxed” in its approach. Because gold can be reactive to interest rate changes, these are important stories to watch—with the tax plan’s potential implementation driving the headlines.

Conflicting Reports about Gold Demand

Gold demand is always a key indicator of where the price will go. Recent demand from India suggested that the price for gold could stay relatively muted in coming months, although some watching the geopolitical headlines—most notably as of late, the power struggles in Saudi Arabia—could keep the demand for a hedge against the markets up. That seems to be a running theme throughout 2017, and for investors looking for a hedge, it appears very little will change in the coming months.

As always, it’s the unpredictability of world events that helps propel the strength of gold. Although the headlines with North Korea have cooled as of late compared to the summer, it will remain another geopolitical issue to watch, even late in 2017. Perfectly timing and anticipating the unexpected is impossible in a sensitive world market, even if stock prices remain high for the time being.

Banking Stocks and Dollar Confidence Low

Financial stocks recently took a little hit, which helped dragged down the stock market, and this was followed with a decrease in the dollar. That tends to mean higher prices for gold. It’s possible that some are seeing a weakness in the confidence of the “Trump economy,” referring to the new highs and records set by the Dow Jones Industrial Average throughout the Trump administration. If geopolitical headlines continue their current course and investors lose confidence in stocks, precious metals like gold may be some of the few hedges investors have.  

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.