It is all doom and gloom in the gold market right now – with the situations in Gaza, Iran and North Korea, the stock market bloated, and interest rates on the rise – the expectation was an upward shift in gold prices – instead – this is what happened…
We will have a brief run through the graph, later below, but just wanted to point out a few fundamental concepts, regarding the gold price at the moment, first.
Historically, gold has always thrived on uncertainty. But the gold price itself is not the only factor here.
Firstly, gold is priced in US dollars. This means that as the dollar rises – the price of gold falls. below is the chart of the dollar today – the rise has been quite steep; so the fall of gold has been equally so. Over the space of two weeks, the dollar has risen by 5% – from A) to B) on the chart here:
Secondly, gold is a very special commodity. Its value is not based on its utility. It has had value for all of human history. But it is not immune to the laws of supply and demand. The causes of its demand are rather unique – while its supply is relatively fixed. People cannot do without shelter, water, food or clothing. They can do quite well without gold. Gold only has value because people want it, not because they need it. As an investment it only works if the price goes up – it produces no income.
Most investments work because what is invested in produces a good or service. Gold has been a good investment because it is perceived as a good investment. Buyers believe they can sell it for more than they paid.
Gold is also viewed as a store of wealth. It has an intrinsic value. The US dollar is a medium of exchange. It denominates and facilitates commercial transactions. Gold is a commodity, the US dollar is not.
Gold has been rising in price since the end of 2016. Since it’s low of $1,122.89 on 16th December 2016, it had climbed to $1365.5 on 8th April – a rise of $242 – or 21%.
The fall this past week or so represents a 5.6% loss – or $76.20 – almost the same as the increase in the price of the dollar.
We see this latest fall as a buying opportunity – one which we might not see again for a very long time. President Trumps “America First” policy relies on the dollar being weak so that exports can be boosted. The trade tariffs, too, are having an effect. This has to mean gold gaining ground soon – but in the meantime …
What about that graph at the top? A lot of gold commentators were dismayed at the fall in gold – for all the reasons above. The big question is, of course, where does gold go now? Does it bounce from these lows, or does it have further to fall?
The next key support on gold is in the $1,290 to $1,285 range. if it is unable to hold these key support levels – a further fall is something which cannot be ruled out. ultimately a fall down to $1,234 ( the 200-day simple moving average on the weekly timeframe) is our current worst-case scenario.
Of course, one man’s ceiling is another man’s floor – we would look upon these latest developments as a massive buying opportunity – given the perturbations in the stock market recently, and going forward, we see no collapse in the price of gold on the horizon any time soon.
Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.
This article was originally posted on FX Empire
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