Gold Prices Up 16% for the Year
Gold surprised many investors this year with gold’s prices up 16% for the year, outperforming several US stocks. Although so far this is a strong result for gold, the yellow metal is vulnerable to a price correction before gold pushes toward the 1400 mark.
Gold is vulnerable to Short Term Corrections
Although gold prices are reaching September 2016 highs, they have not been accompanied by broad investor demand and the physical market remains soft, making the rally susceptible to short-term corrections.
The latest gold price hike has been largely driven by buying from futures speculators. Inflows into exchange-traded funds have already hit 29 tonnes for September, but retail demand remains soft, with coin sales lagging on a year-on-year basis.
There is no doubt gold is susceptible to short-term corrections because of the lack of broad investor demand. In my opinion, gold will pull back to the 1300 mark before it bounces up again.
Gold Will Bounce Back
The fundamentals for gold to push toward the 1400 mark are there and cannot be ignored. The possibility of an interest rate hike in the US before the end of the year is very low. On the other side of the Atlantic, the chairman of the European Central Bank is not willing to increase interest rates too.
Why Gold Will Come Back
Tensions in the Korean peninsula continue and no one can predict the outcome. Geopolitical uncertainty is here to stay.
The dollar will continue to weaken and at the same time, there are questions raised on Trump’s administration’s ability to pass legislation.
Economic expansion, especially in Asia, and fear of trade is another reason for driving gold’s price.
Conclusion
The precious metal is definitely catching the eye of many investors these days, as more people use gold as a hedge against risks.
“Gold provides diversification. Its returns usually come when the stock market pulls back. That benefits investors greatly because when they feel pressure from stock exposure, their gold allocation does well.
Gold will fall back, but there is nothing to worry in my opinion it will bounce back.