For the last four sessions, the price of gold has fallen and closed at new lows for the year. We’ve talked all week about how gold can’t seem to get a foothold despite having several prospective “hooks” for attracting safe haven demand among investors. In today’s commentary, we’ll look at the one thing that will most likely inspire new bids for gold in the coming weeks. We’ll also examine the current internal status of the actively traded gold mining stocks, which mostly remain under selling pressure.
The latest graph of the iShares Gold Trust (IAU) tells the story for gold. It’s a tale of an asset which has been completely ignored by investors despite possessing every reason for gaining their notice. Geopolitical and economic concerns ranging from the U.S.-China trade war to rising fuel costs and Iran sanctions have converged to create the perfect opportunity for investors to re-evaluate the safety benefits of gold. Yet so far none of these growing concerns are having an impact on the gold price. Indeed, gold has instead accelerated its decline as the list of worries has increased in the last two weeks.
Source: BigCharts
Even a highly publicized rally of the crude oil price has failed to reverse gold’s slide. The August oil futures price has risen to new highs for the year in complete contrast to gold’s recent performance. This is all the more unusual given that oil rallies have often produced gold rallies in the past due to gold’s extreme sensitivity to this commodity. Fund managers historically have viewed oil as an inflation proxy, and when they see the oil price rally they often look to other inflation-sensitive commodities like gold as profitable speculative trades by extension.
Source: BigCharts
Source: BigCharts
The biggest obstacle standing in the way of gold reversing its decline is of course the rising trend in the U.S. dollar index (DXY). Although the dollar was virtually unchanged on Thursday, it has hit new highs for the year this week and is putting serious pressure against gold due to the metal’s currency component. A reversal of the dollar’s upward trend is the most basic requirement which would allow gold to begin reversing its decline.
