Last week ended on a positive note for both the beleaguered crude oil market as well as the stock markets. Most equities managed to rally (if only briefly) following a dreadful start to January of this year.
As myriad factors drive safe haven demand for precious metals, the gold price rose $9 per ounce on Monday morning, trading near $1,108/oz by 9 am ET.
While gold added 0.8%, silver climbed by about twice that margin, adding 1.65% to settle more than 20¢ per ounce higher at $14.30/oz. Platinum outpaced its counterparts, surging 3.75% (+$30 per ounce) to $865/oz, a fresh 3-week high.
Overall, gold has maintained an upward trend (albeit somewhat choppy) going back to the last five weeks.
Flight to Safety
Even though Asian markets managed to close modestly in the green overnight, stock indices in Europe and the U.S. were posting losses during morning trading on Monday. Although the dollar was down a quarter-percentage point to 99.3 on the DXY, it has remained firmer against to the euro and the yen over the last several trading sessions.
The progressively improving outlook for bullion prices has been long in the making. Bit by bit over the last year or so, increased anxiety on the markets has driven investors to look for safer alternatives to the extreme volatility that “traditional” assets are offering right now.
First, we’ve seen a staggering $15 trillion decline for global equities dating back to last summer. The result has been a gradual improvement in investor sentiment regarding gold. Exchange-traded funds have risen $3 billion in aggregate value in 2016 alone, while hedge funds have more than doubled the number of net longs on gold futures in a matter of a week, according to the CFTC. This brought the number of positions on the long side of the trade up from 902 to 1,934. The jump followed the largest-ever net short position on gold a mere three weeks ago.
The precious metals are benefiting from an array of worrisome developments in the U.S. and abroad. Liquidity is again becoming a looming issue in the Treasury market, making gold the more attractive safe haven. At 1.98%, the 10-year T-note yield doesn’t have much more room to move lower, meaning quite a bit of money is piled up into these government bonds.
All eyes will be on the Federal Reserve, which meets on Tuesday and Wednesday of this week. Amid such uncertainty, most experts believe the odds of a rate hike this month are slim-to-none.
The economic picture is even more unsettling when one looks abroad. China has remained a focal point for the markets, as traders await some clarity on how the government will handle the Chinese economy’s rocky landing from a quarter-century of riding high growth rates. Over the course of 2015, foreign investment in the country declined by $1 trillion. These kinds of violent outflows have been the result of the unpredictable nature of policy shifts by the People’s Bank of China.
To the north, the Russian stock market has plunged thanks to the utter collapse of the crude oil market. (Russia depends heavily upon its oil exports.) The ruble continues to sink, while the Russian economy is projected to contract by the most since the doldrums of 2009. Crude oil prices were down more than 3% on Monday morning. Many other emerging markets have suffered similar problems; the oil-producing Gulf nations have struggled under such low oil prices as well, raising tensions among the major powers in the Middle East.
The more that these interconnected developments paint a dreary picture, the less it’s any wonder that the markets would turn toward gold as a safer alternative.
Gold’s overnight low of $1,097.50/oz forms the new support level after this morning’s rally, with $1,092.50/oz as the next key support below that. Resistance is fairly tight, considering how long it’s been since gold traded consistently above $1,100 per ounce. The next resistance level is right at $1,110/oz (last week’s high point) and $1,113/oz above that.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.