What is Moving the Price of Gold?

by Lear Capital EditorialJuly 07, 2019

The price of gold has been jumping lately, worrying many investors. Gold is often a harbinger of tougher times to come in the markets. What is moving gold to 6-year highs? Will the same forces have a negative impact on your other investments?

Also, does this mean your precious metals buying opportunity has passed?

Many factors are contributing to gold’s recent skyrocket to 6-year highs. After several months in the $1290-1340 range, gold has suddenly broken out and rocketed past $1400 to hit a 6-year high of $1438.

The top 3 forces behind this strong move up: A weakening dollar due to a dovish Fed, falling consumer confidence and increasing global tensions.

  1. A Dovish Federal Reserve is sending signals that are weakening the dollar. Comments by Fed Chair Jerome Powell last week are increasing expectations of a rate cut in July. The cheap money spigots may be turned back to full blast by the end of the year, especially if the economy takes a turn for the worse. Money printing at the Fed means a softer dollar, which means higher demand for the stable value of gold.
  2. Falling Consumer Expectations. As we mentioned last week, the extreme disconnect between current economic conditions and consumer expectations for the future is the main reason DoubleLine CEO Jeffrey Gundlach puts recession risk at a 40-45% chance in the next 6 months, rising to a 65% chance in the next year. A softening Federal Reserve seems to confirm these lowered expectations. When people feel insecure about the future, they flock to safe havens like precious metals.
  3. Rising Global Tensions. People are nervous about the trade war and tariff talks between President Trump and China. How will these issues affect American jobs? Will global demand for American products suffer? What about inputs made in China used in American manufacturing? There is a lot of economic uncertainty out there, and now we have increased military uncertainty concerning Iran. Markets were rattled over the Iran drone strike and retaliatory action that was called off at the last minute by Trump. There are major concerns that the saber-rattling on both sides could escalate into all-out war. War brings economic chaos, and that always leads to higher demand for safe havens.

Paul Tudor Jones said recently that if gold broke $1400 that could rise to $1700 rather quickly. Will he be right? Is your best buying opportunity for precious metals in the past? Some technical indicators are saying gold is “overbought” right now and due for a quick correction. Maybe that will be true and maybe Jones will be right and it’s nowhere from here but up. You could wait for that dip to come back around again, but what if it doesn’t? The best dip you see in the near future could be higher than today’s highs.

It will be up to you to make the best decision for your family on the timing of your precious metal’s purchases. The truth is it is impossible to predict where the price will go. We can only analyze the forces we see today and ask ourselves if we think these forces will be stronger or weaker tomorrow.

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