The gold price will be impacted by multiple factors this week. These include the decisions taken by the Federal Reserve Bank, the policies of US president Donald Trump, and economic data releases. The most important point to remember is that gold thrives during times of geopolitical uncertainty.
When a risk-off approach is adopted to Wall Street equities, the capital is diverted elsewhere. Funds will typically flow to US Treasuries, fixed-interest bearing accounts, or gold. Investments in gold can take many forms, including gold bullion, gold coins, ETFs or gold stocks.
The latter category typically amplifies the movements in the gold price because there are multiple factors at play which determine the price of a gold stock. Major mining companies like Randgold, Anglo American, Goldcorp, BHP Billiton and others have many factors at play determining their share price.
Things like management policies, yield potential of mines, the quality of mines, new gold prospects, and the like determine how profitable a gold mining company will be. It’s entirely possible for the gold price to be declining, and profits at goldmining corporations to be rising.
Current Trends in the Gold Price
On Friday, 10 February 2017, gold was trading at $1,232.90 per ounce, up $5 on the day. Bullion’s spot price raised the prospect of a solid week of trading ahead. It should be noted that gold has been an erratic performer over the past 1 year. Half way through 2016, gold was one of the strongest performing investments of all, with gains of close to 20%. However, this all but eroded away as equities markets began to rise and Donald Trump was elected president of the United States. By November 8, 2016, equities markets were already pricing in massive fiscal spending and huge economic stimulus after Trump’s campaign promises resonated with traders.
The Trump phenomenon as it has been deemed is expected to plow hundreds of billions of dollars into the economy, what with the creation of massive infrastructure programs and a wall on the Mexico/US border. Over the past 1 year, gold has barely appreciated (+3% / +4%), a sharp reversal from just a few months ago. Traders at Lionexo binary options stress the importance of checking technical and fundamental factors with gold bullion. These include careful analysis of demand and supply factors, trend analysis and geopolitical uncertainty. Over the past 30-days, gains in the price of gold have been rather modest. If we consider that the Dow Jones Industrial Average, the S&P 500 index and the NASDAQ composite index areall up over 24% over 1-year, there is certainly not an atmosphere conducive to a sharply rising gold price.
The Trend is Your Friend: Trade Gold the Way it is Moving
For the week ahead, the focus will invariably be on the Fed. One of the presidents of the Fed (Board of Governors) Tarullo, recently wrote to Trump explaining that he would vacate his post by April 5, 2017. Tarullo was an influential figure in keeping the pressure on banks and the financial sector. His resignation will leave 3 vacant seats on the 7-member board of governors. Janet Yellen is expected to retire in 2018, and this will make it much easier for Trump to put key personnel in place to push his deregulation agenda on Wall Street. The Fed is slated to announce 3 rate hikes in 2017, and each rate hike will not bode well for gold.
However, traders will be able to profit off hawkish behaviour by going short on the precious metal. Note that rate hikes strengthen the USD and create downward pressure on gold demand, and therefore the gold price. Rate hikes are also bad for equities because they increase the cost of borrowing money for companies. Presently, the 100-day moving average (MA) price for gold is $1,229. The 20-day moving average (MA) for gold is $1,215. Provided that the gold price remains above these levels over the short-term, call options will prevail. As soon as gold retreats beneath these key metrics, the trend should be traded to the downside.
This article is not intended as individual or reader-specific investment advice. Do your own research and consult a financial professional, if necessary, before investing in anything.