How Will A 20,000 Dow Jones Industrial Average Affect Gold Prices?

Which is it—are the markets so confident in President Trump that it’s fueled a rally to 20,000 on the Dow Jones Index, or are the markets still tepid about the economy, creating higher demand for gold and precious metals?

With the recent news that the Dow Jones Index has finally hit the historic 20,000 mark, making sense of gold’s relationship with the markets is more important now than ever.

Just A Few Days Ago The Story Was About “Trump Jitters”

Mining.com reported this week that gold’s recent rally to a two-month high came about as a result of “safe haven buyers amid increasing global and geopolitical uncertainty.”

Looking at the market returns today, this doesn’t seem to be the case.

The mystery may lie in the fact that it’s not necessarily lack of confidence in markets that drives gold—although that can certainly be a factor, as it was during the ’08 financial crisis which led to a bull market in gold.

In fact, there’s another factor entirely that seems to lose steam when all of the focus of the newsroom is on the price of the Dow Jones Industrial Average.

Gold Prices Are More About The Strength Of The US Dollar

This is not news to regular readers of this space, but gold prices tend to be more about the strength of the US Dollar Index than the strength in the US markets. There may be long-term correlations between high gold prices and weak stocks, and vice versa, but investors who really want to increase the value of their gold holdings should always pay attention to the US Dollar Index.

This isn’t news, but bears reminding as the Dow Jones makes all of the financial headlines this week. Those interested in the price of gold should continue to look to other sources of information to find their forecasts for gold prices.

There May Be More Volatility Here Than Markets Expect

As DailyFX.com reports, the risk of “kneejerk volatility” right now is high. What does this mean for investors? Those looking at the 20,000 stock market prices shouldn’t be convinced that there is a solid foundation in place for this to be the “new normal.” In fact, markets may be subject to more volatility than many people expect.

Market volatility, of course, tends to be better for gold prices, which are still a safe haven against true volatility. Even if the US Dollar Index has the most to say about the price of gold, watching this volatility as a long-term strategy will help precious metal investors see whether storm clouds are gathering or merely passing through.

Although the 20,000 barrier is a major headline-grabber, gold investors would be wise to keep in mind that the price of gold is not highly variable based on the headline-grabbers in the stock market. There are other factors to watch, even if 20,000 is a nice round number. Smart investors should continue watching these other factors to make sense of precious metal markets and markets around the world.