By John McDonald
Just a few days ago, gold prices had hit a one-week low and some analysts were predicting a mini-selloff of the yellow metal. However, investors waiting for prices to fall further before buying may have waited too long, as Brexit concerns and ongoing trade tensions with China have already sent values upward once again. Not surprisingly, the stock market faltered at the news that high-level trade talks notwithstanding, the U.S. would move ahead with plans to limit capital flows into China and add more Chinese firms to a burgeoning blacklist. Naturally, capital flowed into safe-haven investments like gold and precious metals as investors adopted a wait-and-see approach to Wall Street.
“There is a possibility the U.S.-China trade talks will stall,” said RJO senior commodities strategist Phillip Streible. He warned that the more likely this appears, the more capital will “flee” into safe-haven products like precious metals and, in particular, gold. However, he added, the yellow metal appears “range-bound” at the moment, which means it has not broken through $1,566 on the upside or $1,465 on the downside. For investors hoping to buy low and sell high, this type of constraint makes it difficult to implement their strategy. For investors intending to buy and hold the asset, however, a range-bound investment can create a degree of predictability, at least in the short-term, that may improve their ability to strategize about when to buy.
Watch for Gold “Confirming Indicators” for a Shift in the Market
According to Seeking Alpha analyst Clif Droke, gold is likely to remain range-bound for now absent the appearance of certain “confirming indicators” that a significant change in gold values is coming. Droke predicted a sideways trend in the short term due to the strength of the dollar. However, that trend will probably be slightly to the positive and, therefore, good for investors acquiring gold at present and also for gold bulls hoping to leverage price momentum.
Over the longer term, Droke recommends watching for two confirming indicators: a weakening dollar and/or a rise in silver prices. Either of these indicators alone may indicate a looming change (for the better) in gold prices, although a strong silver price is particularly important, Droke said. “If silver fails to catch up to the gold price soon, it will mean that gold has lost important psychological support,” he explained. Gold rallies that are unaccompanied by silver rallies have, historically, been shorter in duration, although today’s geopolitical climate is ideally positioned to support a long bull run for gold regardless of what silver is doing.