By John McDonald
Soaring dollar values have stalled a precious-metals bull run, but most analysts and investors believe the yellow metal and other precious metals are not finished yet.
In the wake of record highs for palladium and a five-month winning streak for gold, precious metals investors eased off demand for the metals when dollar values stalled appreciation the last week in September.
Although investors who bought at the recent peaks may be sweating, it does not appear that the bull run is done to most analysts.
When the dollar rises in value, precious metals tend to slack off on gains because they become relatively more expensive to global investors and because a strong dollar is usually associated with a stronger U.S. economy.
The latter is reassuring to stock market investors, who are more likely to pour capital into purchasing shares of Wall Street companies than safe haven assets like gold and other precious metals.
This trend followed its typical course over the last week in September, when platinum fell about 5 percent and gold fell 2 percent early in the week.
Palladium, which had recently hit a high of $1,700 per ounce, also fell off slightly, although it still posted a 9 percent gain in September.
Silver slid 3 percent, but is still likely to have had its best quarter of the last 10 when the final data comes in.
Jeffrey Christian, managing partner of CPM group, attributed falling gold prices to “people who are getting out of gold, silver, and platinum because those prices are falling.”
Christian believes this will be good for the palladium market, since palladium is used in emissions-reducing technology in the automotive industry.
He said that despite a weakening auto sector, demand for this precious metal will likely remain high as investors exiting gold, silver, and platinum investments consider shifting into palladium.
“There is a lot of concern that there is not a lot of palladium around,” he pointed out.
“A big part is people who own the metal don’t want to sell at current prices. They want to see how high the price goes before they keep their profits,” Christian added.
Tariff Tensions Will Play a Big Role in Gold in Q4
Another factor in easing gold prices is the tensions between China and the U.S. when it comes to trade policies.
When the White House dismissed a report that the U.S. might delist Chinese companies from U.S. stock exchanges, the dollar and the markets immediately firmed up.
This led to a reactionary decline in the demand for new gold and falling gold futures as investors began to feel increasingly confident about their Wall Street investments.
However, recent history shows this confidence could turn on a dime and, furthermore, a number of trade policies are not scheduled to go into effect until after prime holiday shopping season.
If the U.S. and China do not resolve their differences or appear to be on their way to doing so by December, investor unease will likely cause gold values to rise once more.
As long as “a slightly firmer dollar and a relatively uneventful geopolitical landscape” are the main sources of precious metals’ prices easing, then investors may remain confident the rally is not completely over.
In today’s geopolitical climate, the only certainty is uncertainty. While that may be hard on stock portfolios, it is an ideal climate for safe haven investments like gold.