Has Gold Lost Its Shine?

Since the beginning of the year, the DJIA has increased about 2.5%, while gold over the same span of time has dropped almost 6%. So, based on those figures, it’s easy to say, ‘perhaps.’ However, it is critical to realize that a great deal of this year’s stock market investment capital has come from foreign investors, who essentially have watched this bull market excel, while a great majority of alternative global investment options have failed miserably. It’s also important to realize that a crash or monumental correction is frequently preceded by a flurried upswing. The first half of 2018 saw the stock market experience a few pullbacks, as geopolitical tensions increased. This is mostly applicable to Asia and the U.S., where tech stocks were responsible for most of the growth and managed to ignore growing trade war rhetoric.

Meanwhile, gold’s performance has been inhibited by three main factors:

  • A strengthening U.S. dollar
  • An obstinate investor attitude permitting increased risk tolerance and
  • Softer than usual Q1 physical demand.

It’s important to realize that lopsided investor positioning in derivatives markets, also accelerated gold’s price reduction. However, during the second half of the year, as we have already seen, a number of macro trends will provide increasing support for gold’s valuation:

  • Rising inflation and an inverted yield curve
  • The inevitable effects of growing trade wars and their impact on currency and
  • Somewhat positive, but uneven global economic growth.

Recent substantial drops in the stock market have sent tremors through the investor community and more and more are seeking the safe haven provisions of gold, particularly at today’s very attractive entry levels. As usual, central banks have quietly and methodically been adding to their reserves, while encouraging investors to stay away from such a “volatile market,” but this month’s exponential purchase by the Hungarian central bank, which took their reserves from 3.1 tonnes to 31.5 tonnes (a 1000% increase), may force investors to ignore central banker recommendations and do what they do rater than what they say. It’s a very interesting move, particularly considering that the bank hasn’t altered its gold reserves since 1986.

As the stock market finds itself on thinner and thinner ice, smart investors are capturing stock market profits near a high and converting those funds into precious metals at substantially lower prices, yet plenty of room to run. Call the precious metal experts at American Bullion, at (800) 653-GOLD (4653) for professional assistance. Timing markets is difficult to impossible, but don’t wait so long that you don’t have a chair when the music stops!

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.