Several sources could ignite gold before the summer ends.
Despite trending lower over the summer, an article on The National says gold could still surprise investors and finish the quarter on an exceptional note. Gold’s respite could come from several sources, one being a repeat of last summer’s trading pattern.
Back then, gold hit a substantial low before sharply recovering and gaining $150 over the following two months. The article says the fact that gold experienced a similar dip this summer in the exact same week suggests gold investors could have cause for optimism. Showing further promise is gold’s immediate recovery, which could mean that the dip was the metal bottoming out.
But there are other sources for gold bugs to draw strength from. While a promising trading pattern could result in great things for the metal over the short-term, the article states that the real gains might come from mounting problems in the global economy.
The most conspicuous of these is a possible correction in the record-setting stock market. Since the 2008 crisis, equities have soared in a manner that made many feel as if the market was invulnerable. And yet, a recent flash crash of the Dow gave new weight to warnings by many analysts that equities are due for a reversal.
World stock market indices have already ended 2017 in the red, underlining recent comments by the International Monetary Fund which said that the global economy is worse off than it seems. The recent 20% correction of the Chinese stock market, brought on by debts and over-expansion, reminded investors how quick and painful equity crashes can be.
China’s stock market meltdown was also fueled by the apparent willingness of U.S. and Chinese leaders to initiate a trade war between the two superpowers. According to the article, a large-scale trading conflict would act as its own catalyst for higher gold prices, in part due to a spike in inflation that’s synonymous with such standoffs.
In a post written earlier this month, precious metals analyst Theodore Butler pointed out that JP Morgan, the biggest bullion bank in the world, created massive long positions in gold and silver while instructing traders to do the opposite. This behavior suggests that the bank could be bracing for a period of higher gold prices in the relative near term.
According to the National article, other catalysts swinging in gold’s favor include plummeting Treasury yields, which have been on a downtrend since mid-May. Russia’s decision to slice its U.S. Treasury holdings by half in April also brought concerns that China could follow suit, further lowering the appeal of the primary safe-haven competitor to precious metals.
Any one of these powder kegs could ignite gold before summer ends and allow the metal to break out of its recent narrow trading pattern. However, gold may not even need a major crisis to prosper, given that a number of analysts expect the metal to do exceptionally well as interest rates continue to lag far behind the rising global inflation.