Gold investors enjoyed an impressive turnaround towards the end of the session on Thursday to boost the prospects of the Direxion Shares Exchange Traded Fund . Gold has suffered in the first three sessions of this week to touch a two-week low on Monday. In fact, analysts have observed that the general market sentiment doesn’t support a bullish outlook for the bullion. The U.S. dollar has also edged stronger in recent sessions to make the bullion expensive for foreign buyers.
The yellow metal had turned red at the start of this week after Hillary Clinton skinned Donald Trump in the first debate. The improved odds of a Clinton Presidency has restored investors’ confidence in the economic stability of the U.S. and there were fewer reasons to buy the bullion for the safe-haven status that it offers. This article explores the factors behind the surprising turnaround that could help the bullion to end with gains this week.
Gold experience turnaround after stocks wobble
Investor in gold and Direxion Shares Exchange Traded Fund were surprised when the bullion suddenly started reversing losses late in Thursday’s session. Earlier in the session, the yellow metal fell as low as $1,318.60 an ounce to mark the lowest trading price since September 20. However, the yellow metal recorded a sharp uptrend to end the session with 0.2% gains at $1,326 an ounce.
The main reason behind the unexpected uptrend in gold can be traced to the sudden weakness in the equities market. On Thursday, the S&P ended the session with a loss of 1.07%, the Dow Jones ended the session with 0.93%, and NASDAQ ended the session with a decline of 0.93%. Equities also suffered in the global markets – In Asia, Japan’s Nikkei 225 was down 1.46% and Hong Kong’s Hang Seng was down 1.86%. In Europe, UK’s FTSE 100 was down 0.71% and Euro STOXX 50 was down 1.25%.
As expected, the sudden weakness in stocks has pushed investors to seek refuge in the safe haven that gold offers. Fawad Razaqzada, technical analyst at Forex.com notes that “U.S. stock markets are pushing towards new highs… so speculators probably don’t want to tie up their trading capital in something that is not moving.”
Gold still has impressive upside ahead
Gold and Direxion Shares Exchange Traded Fund still have impressive upside ahead because the U.S. Federal Reserve is slowing down on its decision to raise interest rates. Last week, the fed adopted a dovish stance towards interest rates but it left the door open that it could raise interest rates before the end of the year.
Interestingly, Chicago Fed President, Charles Evans has hinted that the fed won’t be raising interest rates any time soon. He noted that the fed might stay put on Interest rates “for some time”. In fact, the fed noted that Interest rates might even go lower because “the new equilibrium likely will be one with lower interest rates than we have experienced in the past.”
The fact that the Fed is exercising caution about a rate hike has brightened the prospects of the yellow metal going forward. Mark O’Bryne of GoldCore observes that “but if prices close lower for the quarter instead, that “given the strong fundamentals of increasing geopolitical and economic risk, we expect that, once options expiration and quarter end are over, that gold should move higher in Q4.”