Gold is down about 6% at midday and is now down more than US$700 an ounce since March 2, a couple days after the start of the Middle East conflict.
There are mounting concerns the war will continue for some time to come. So why isn’t gold – known for being one of the market’s biggest safe haven investments – doing so poorly amid the surge in geopolitical tensions and market uncertainty?
Recent strength in the U.S. dollar – which tends to move inversely to gold – can explain some of gold’s lack of glitter of late. But that unlikely explains all of it, given the greenback’s moves against major currencies have been relatively rangebound by comparison.
Veteran Wall Street analyst Ed Yardeni offered up some other suggestions on why gold has lost its popularity in a note to clients today.
“The always-reliable quick answer is: profit-taking following a meteoric rise. Perhaps investors in the Middle East are selling gold to buy the US dollar, which has strengthened during the war, even though both are considered safe havens. Rising bond yields might also explain gold’s recent meltdown. The probability of further Fed rate cuts is falling as inflation heats up,” he said.
“Technically speaking, gold’s price dropped below a short-term uptrend line this week. The next uptrend support line could be tested closer to $4000. Another technical explanation is that the gold price rose too far, too fast since early last year, jumping above its ascending channel this year.”
“We are still targeting gold at $6,000 by the end of this year and $10,000 by the end of 2029. However, we are considering lowering our year-end target back to $5,000 if gold continues to defy our expectations that it should be rising on unsettling geopolitical developments, rising inflation, and mounting US government debt.”
“From a sentiment perspective, the recent drop in GLD’s stock price on high volume suggests panic selling. From a contrarian perspective, that could soon make a bottom in the recent selloff.”GLD-A -5.42%decrease, the SPDR Gold Shares ETF, is the world’s largest physically backed gold exchange-traded fund
Leave a Reply
You must be logged in to post a comment.