Is Gold a Good Safe-Haven Investment Now?

By: ispeculatornew
Date posted: 07.09.2017 (8:21 pm) | Write a Comment  (0 Comments)

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Every time speculators get cold feet about equities, people flock to gold as a safe-haven investment. For the week ending Friday, July 7, 2017, markets were thrown for a loop. A large-scale tech stock selloff on the NASDAQ precipitated fears that Wall Street is on the decline. Pundits were saying that years of strong gains must certainly culminate in a market correction, or a dramatic long-term reversal.

The bulls will invariably run out of steam, and the bears will come out to maul markets – they say. But these naysayers are ill advised. The financial markets are not beholden to anyone, let alone speculative sentiment. Sure, a jolt hear or there will upset current trends but ultimately, it’s macroeconomic factors that determine what rises and what falls.

Tech Selloff a Blip on the Radar

Recently, the NASDAQ threw traders for a loop. A major selloff of tech stocks took place before the US Department of Labor released the June NFP data. And what a surprise it was: 220,000+ new jobs were added in the month – welcome news for stakeholders on Wall Street and abroad. Consider that economists were expecting 180,000 new jobs to be added, but the actual figures exceeded forecasts by a huge margin.

President Donald Trump wasted no time gloating about this news on Twitter, and his followers were quick on the uptake. More importantly, markets reacted favorably to the latest NFP data. By the end of the week, the Dow Jones Industrial Average (DJIA) was up 0.4% at 21,414.34.

Even the tech-heavy NASDAQ closed the week at 6,153.08 for a gain of 0.2%. The S&P 500 increased 0.1% to close at 2,425.18 for the week. These figures are especially encouraging since the bigwigs of the trading world were convinced that markets had topped out and were on an inexorable decline.

Trading Experts Weigh in on Market Activity

ECN Capital expert, Charles Wilson Sr. believes that the NFP data will have a profound effect on monetary policy, and equities markets. “Given the bullish sentiment on Wall Street as a result of the strong June NFP data, we are likely to see Fed chair Janet Yellen moving to unwind the $4.5 trillion balance sheet sooner, rather than later. Inflation concerns remain, owing to weakness in crude oil prices, but the Fed is likely to accelerate its monetary tightening. A dual approach in the form of asset sales and rate hikes to the federal funds rate will do the trick.”

A slight increase in hourly wages was also reported during June, up at $26.25, for an increase of 0.2%. This was marginally less than expectations, but nonetheless a positive sign. Over the past year, wages have increased modestly at 2.5%, which is behind the eight ball. As bond markets enjoy higher yields, a risk-off approach to equities markets kicks in. There is a sense that central banks are moving closer towards monetary tightening around the world, and this is keeping traders at bay. As bond prices fall, yields rise. Typically, people buy bonds when equities markets are in trouble, much like gold bullion.

How are Gold Markets Performing?

The current price of the precious metal is $1,212.82 per ounce, up slightly on Friday, 7 July. Over the past 30 days, gold has declined by 6.32%, or $81.50 on the back of strong USD performance and a risk-on approach to equities markets. Since gold is a dollar-denominated commodity, demand rises when the dollar depreciates. According to the US dollar index, which is now at 96.00, the USD is appreciating. Over the past 5 days, the US dollar index has gained 0.39%. This underscores the decline in gold demand.

However, for the year to date, the US dollar index is down 6.23% – a good sign for gold bugs. Mr. Charles Wilson Sr. believes that there is still a significant market for gold, possibly in different forms. These include ETFs, gold mining stocks and Gold IRA options. Presently, gold is languishing with steep losses. Increasing treasury yields and a stronger USD are hampering gold demand, but this also makes it a value-driven deal for long-term investors.

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