There is total chaos and confusion in Global Financial markets. Everything has been hammered out of shape except Gold. Gold is already up 17% in 2016. Gold has become the best hiding place for scared money and that is making Gold bulls very very happy
Gold after disappointing for three consecutive years in 2013, 2014 and 2015 seems to be making a grand comeback in 2016.
Here's the Gold Chart
There are following possible explanations for rise in Gold prices:
1. Scared money chasing Gold. Gold is considered as safe haven in times of financial stress and investors are more comfortable parking their money there
There is panic and scared money is chasing Gold. Gold miners ETF GDX making a sharp turnaround rally pic.twitter.com/SIfNEXY8t1
— Deepak Singh (@smarket) February 11, 2016
2. The weakness in the US dollar has caused the dollar-denominated asset like Gold to rise.
3. The talk of negative interest rates. One of the arguments against Gold: It is a commodity that bears no interest. If US Fed pays more interest—above zero, in that case— big money will prefer higher-interest vehicles to gold. But if Fed starts paying negative interest rates, then big money might have no choice but chase assets like Gold
THE BIG QUESTION: Is the rise in Gold price temporary or sustainable?
It all depends on how future shapes up and what Fed does. Also technically, one should never change opinion with one rise.
Here's the weekly Chart
Nothing seems to have changed. The rise looks like a short covering surge and sooner or later: Gold will succumb and head lower. But we never know for sure and hence, every rise should be monitored with caution.
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Also Read: How Low can interest rates go?
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers