Gold just keeps rising amidst falling stocks since last Wednesday after the market took a 1,300-point plummet last week. Rising more than 1 percent on Monday to its highest point since July 26th at $1,231.45 an ounce.
U.S. gold futures also rose 1.1 percent to $1,235. Platinum also rose 1.4 percent to $848.50 an ounce along with Palladium, which rose 1.7 percent to $1,084.10. Silver also gained 1.5 percent to $14.76 an ounce.
“Gold has now got a stronger tailwind from a flight to safety from risky assets,’ said Quantitative Commodity Research analyst Peter Fetrig. “Gold’s next moves will depend on how long this sell-off continues.”
Global Volatility Gives Way to Falling Stocks
Over the past week, European equities have slid greatly thus causing quite the concern and volatility amongst global stock markets.
Multiple global factors seem to be weighing heavily on global stocks; the US-China trade dispute, higher US interest rates, stalled Brexit negotiations and concern about an economic slowdown in China.
If pressures in emerging markets escalate or global trade relations worsen, risks to the global financial system could increase substantially, according to the International Monetary Fund. As concerns continue to grow with China, Europe and now as an increase in tensions between Western powers and Saudi Arabia, investors may be looking to continue their sell-offs and, in turn, give bullion much more clout in the very near future.
“We’ve entered a volatile and erratic phase in the market, primarily driven by accelerating rate concerns,” said Andre Bakhos, managing director at New Vines Capital LLC in Bernardsville, New Jersey. “And the Saudi situation adds to this volatility.”
President Trump threatened “severe punishment” if journalist, Jamal Khashoggi, a US resident, and Washington Post columnist critical of Riyadh’s policies, was indeed killed within the Saudi Kingdom. As of this post, there are reports that the Saudis are preparing a report that will acknowledge that Khashoggi’s death was the result of an interrogation that went wrong, one that intended to lead to his abduction from Turkey.
Secretary of State Mike Pompeo has been dispatched by Trump to speak directly with Saudi Arabia’s King Salaman and other top Saudi officials on Tuesday.
Big American businesses and corporations are already separating themselves from Saudi Arabia. JP Morgan and Ford have canceled plans to attend Saudi investor conference “Davos in the Desert,” adding pressure on other US firms like Goldman Sachs Group Inc., Mastercard Inc., and Bank of America Corp. to reconsider their plans to attend the investor event as well. Uber Technologies Inc. Chief Executive Dara Khosrowshahi, Viacom Inc. CEO Bob Bakish ad billionaire Steve Case, one of the founders of AOL, all said they were no longer attending.
Tech Sector Suffers Hit as Apple Falls
Wall Street dropped again on Monday and in the technology sector in particular, with Apple falling 1.6 percent after Goldman Sachs said there were multiple signs of rapidly slowing consumer demand in China, potentially affecting demand for iPhones in the fall. Tech stocks fell 1.34 percent in total.
Goldman Sachs also warned that China’s weakened demand would only add to fears about the impact of the US-China trade ware on corporate profits.
“After many months investors are looking at bullion with much more interest and the price is moving consequently.” ActivTrades chief analyst Carlo Alberto De Casa said in a note.
And if this surge in gold prices has come as a surprise to you, consider that hedge funds had just made their biggest ever wager on the metal days before its initial surge and the market sell-off.
In fact, by last Tuesday, speculators had boosted their net-short position in bullion futures and options to the largest since at least 2006. The timing was impeccable, as gold was extending a rally, climbing by the most since 2016, by Thursday.
“Sentiment for gold should improve given the risk rising in the equity market,” said Maxwell Gold, a director of the investment strategy at Aberdeen Standard Investments.
“Right now is an attractive time to strategically add positioning for golf investment to hedge against concerns on equity volatility and add to diversification.”
This sentiment showed last Wednesday as buyers initiated exchange-traded funds backed by metal at the fastest pace since March as investors’ confidence began to heavily wane amidst the recent stock market turmoil.
Fed’s Rate Increase Continues As Planned
Also, the Fed’s recent comments that rates need to continue to move toward an estimated neutral level and even a bit beyond are a concern for investors who believe the central banks may increase rates too quickly.
“The Fed could tighten too much, especially given that it is using two tools at the same time- rate hikes and balance sheet normalization,” said Kristina Hooper, chief global market strategist at Invesco. “That has the potential to choke economic growth and create disruption and volatility in the stock market.”
As these factors continue to mount against the market, gold continues to surge, as many investors seem to be jumping ship from stocks and bonds. And the market volatility doesn’t seem to have an end in sight if you aren’t invested in gold the time to do so is now. Before it’s too late.