Gold Prices Hit Recent Low, But Is This An Opportunity?

Wednesday, May 3, 2017

gold blocks

After the Dow Jones Industrial Average went high over the past few weeks, there has been pessimism in precious metals. Now we see that gold is hitting a three-week low as of yesterday, putting it in the mid-$1,200’s per troy ounce. Is this just a temporary setback that represents a fantastic buying opportunity for those who are looking to get back into gold, or can we expect more of the same from gold for the next few months?

Is Gold In Need Of “Bad News”?

It seems when there are headlines that drive people to pessimism, it’s been good for gold—at least over the past 18 months. We saw that famously last year after Brexit. We also saw that recently when international headlines looked testy and gold moved quickly upward.

Seeking Alpha puts it in a distinct way: “gold is in need of some bad news.” That might seem like a bad way to put it, but if gold is merely reacting to bad and threatening headlines, then it may be the truth. Even so, regular readers of this space recognize that gold is tied to other variables that impact its value, including demand, the U.S. dollar index, and bonds. While gold might represent what some view as a hedge against bad headlines and international instability, the truth is gold can recover on the strength of more than just that.

Treasury Yields Climb; Impact On Gold Prices Obvious

You might have noticed that we mentioned “bonds.” Treasury yields have been heading up, which in turn gives optimism to those who hedge their stock bets not with metals, but with bonds. For those who view gold as a hedge investment, the treasury note can sometime be seen as its chief competition. And when the competition is doing well, it can sometimes slow down demand. Yesterday, MarketWatch even pointed out that a traditional “bullish” expert who likes the stock market also likes long-term treasury bonds as a hedge in case of a stock market crash.

Finding Sense In The Middle Of The Storm

The truth is, gold is like any other investment and subject to the ebbs and flows of investor preferences. Although the recent three-week low might be cause for concern, there is simply no telling what will unfold in 2017.

One interesting option to watch for is the action of the Federal Reserve. It’s been a while since the Fed was making major news, and today and tomorrow, there are meetings scheduled at the FMOC. Although the June meetings will be more relevant for markets, this is the time to note that the Fed will probably make more waves. Investors who are pessimistic about the current state of gold and who believe another interest rate hike may be in the works down the line might not see the current trend as a blip, but a sign of where gold is headed for the middle of this year.

A lot is at play when it comes to the price of gold, and the recent lows are testament to that fact. The only question is just how temporary this new low is.

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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.