Small Market Scare Sends Gold Price Upwards

It’s a testament to the recent success in the market that Tuesday’s minor bump downward seems to have the market spooked. The gold price, which had been hanging around the $1,220, to $1,230 range, is most recently hovering around $1,245 per troy ounce as of early returns this morning.

This presents even optimistic investors with an interesting conundrum: if the markets are this easily scared, has the recent success really been built on a solid foundation? Or does it only take a minor correction to send stocks plummeting and precious metals soaring again?

The Return Of The Gold Bull Market?

Seeking Alpha points out that gold bulls have the advantage now, with even an analyst who has been bearish on gold reconsidering his position on precious metals. That shows just how profound the recent market hiccup had an effect on precious metals—and on investor attitudes.

Of course, this potential for a 180 reverse is only in the mind of one writer. But it’s a striking symptom of a general lack of confidence in the stock market. Investors see the earnings to price ratios and wonder just how long this bull market can sustain itself before a big correction looms. What’s important for investors to note is that activity this week does not constitute a “big correction.” The market is now so large that even a 100-point swing is a relatively small movement when it comes to percentage points.

Are The Gold Spike And Market Fears Linked?

Just about every investor who’s ever read about gold knows that it’s largely viewed as a hedge against all sorts of economic problems. Sometimes, this link doesn’t quite hold up as the price of gold and the price of stocks trend in the same direction. This week, however, gives more ammunition to those who see gold as a hedge.

Markets Insider calls it ‘Gold…spiking on market fears” as gold went up and the markets went down. But it’s important to be careful of confirmation bias here, as investors tend to discount whenever gold moves in the same direction as stocks and give more weight to when gold moves up and stocks move down.

That’s not to say that the two aren’t linked, however. It’s true that gold does serve as a hedge against the stock market simply because gold is not a stock. And if market fears spike like this again, there’s a chance we can see gold continue to go up.

Markets And Gold Settling Again

Late Wednesday morning, the Dow Jones began to creep back up to its close from Tuesday as gold made only a modest move in the green. It’s possible that the end of day Thursday will see a reversal of those results—or possibly by end of trading on Friday.

Those watching the gold markets should be interested in what happens this week, and for coming weeks. But one thing is clear: if you expect a major correction, Tuesday’s events don’t qualify. There may be more developments required before gold goes rocketing upwards once again. If so, this could represent a buying opportunity.