Stock markets are showing historic volatility, and that is great for gold bears. Over the past month, the Dow Jones Industrial average has dropped by over 1,000 points and seen large sweeps up and down. The volatility is driven by the need for a market correction coupled with an ongoing trade war with China and Federal Reserve monetary policy inching towards restrictive territory.
With the stock markets in a turn, the gold market has seen a near-term uptick for the quarter. This goes largely against expectations as the Federal Reserve announced an increase in their previously anticipated rate hike. Even with the rate hike, the expectation of more, and the strong dollar in the Trump economy, the Gold is holding strong at a price point that has been well tested over the past three months.
Gold is currently trading at $1,232 per once. The price of the precious metal is down for the year overall, and far off from its one-year high price of around $1,350. Amid the current headwinds for stocks and the likelihood of incoming negative catalysts regarding the trade war, Gold may be set for a quick rally. However, elections could prove to be a bull catalyst for stocks, sending gold tumbling again.
Coming into this quarter, on August 14, gold struck a low-point for the year, at just $1,175. After recovering, the price-per-once remained largely stagnant for the month-long period leading into October. Once October came, and with it a plunging Dow and alarmism from the bears, the price of Gold saw some quick recovery.
Most recently, on Friday, the U.S. announced incredibly strong job growth and the price of gold quickly fell off. Now, after the weekend, gold has seen a quick recovery. While the buying opportunity provided by the selloff on jobs was brief, investors can still act before the next catalyst occurs. As the earnings season comes to a close, stocks will likely begin to slump as more trade war news and possible bearish election catalysts role in.
“A Democratic win, to me, could be the biggest driver of gold that few have been hedging for,” says Walter Pehowich, who is executive vice president at Dillon Gage Metals in Addison, Texas.
While it’s likely that investors will be flocking to gold with the markets uncertain, there is a large bear argument to be made for the current gold market as well.
According to Adrian Ash, the director of research at BuillonVault, the midterm elections in the U.S. will likely play a small role in the gold price fluctuation in coming weeks. Overall, the markets will likely be at a pause until the election results are in and the uncertainty is settled, according to Ash.
“But the more significant event for prices next week might be Diwali in India,” said Ash. “Now the metal’s No. 2 consumer nation is reaching its peak demand season with prices near six-year highs (thanks to the sinking Rupee). That’s badly hurting gifting and investing among the world’s wiliest gold-buying households.”