Gold Is Way Down. Here’s When To Worry.
2 min
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Gold has fallen from its lofty August levels. The precious metal appears to be at a crossroads, but the price likely has to slide more from here in order for investors to get really spooked.
The price of gold ran up 37% between March 15, 2020—roughly when investors were most fearful about the economic damage from the Covid 19 pandemic—and August 2, 2020. That day, gold hit an all-time high of US$2,028, as seen by the Gold Continuous Contract (GC00). Even though stocks rose in that time span, demand for haven assets remained strong, as there weren’t many meaningful signs that the world would soon emerge from the pandemic.
Since hitting a record, the commodity has fallen 9% to date. “The long-term uptrend in gold is teetering on the edge,” wrote Jason Goepfert, founder of Sundial Capital Research in a note.
While gold has been in a concerning downtrend of late, gold-related stocks offer some optimism for the precious metal. Gold mining stocks are typically correlated with the actual commodity price. As an example, Goepfert highlights the VanEck Vectors Gold Miners ETF (GDX), which has largely echoed gold’s moves over the past year. The ETF rose more than twofold between mid-March and early August, before falling 20% from the August level to date.
But now gold mining stocks suggest there could be brighter days ahead for the commodity. Roughly 20% of gold mining stocks have been trading above their 200-day moving averages on most days in the past two weeks, down from more than 85% of those stocks recently, Goepfert said. This cycle has occurred several times in the past few years and usually precedes gains for most gold stocks in the coming three-month period, Goepfert says.
Even if gold price trends cannot reverse themselves, it likely isn’t time to get too bearish yet. The key price level to watch for the contract for the actual metal is US$1780, according to Sevens Report Research. A dip below that would be a negative signal, representing a double-digit percentage drop from the current level. Gold dropped to around that level in late November, but quickly popped back.
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Mortgage holders are bracing themselves for more pain ahead of this afternoon’s board meeting of the Reserve Bank of Australia.
Westpac, ANZ and NAB are all predicting a rise of 25 basis points to the cash rate. The Commonwealth Bank has also said a rate rise is the most likely outcome, but that there is a small chance that the RBA may decide to leave the cash rate unchanged.
Another rate rise today would make it the eighth consecutive rise since April, when it was at a record low of 0.1 percent. At present, the cash rate is at 2.85 percent.
According to RateCity, a further 0.25 percent increase would add another $75 a month to repayments based on a $500,000 loan.
Inflation has remained stubbornly high at 7.3 percent and rising rates reflect an attempt to drive it down to a more palatable 3 percent into 2023.
Today is the last RBA board meeting for 2022, with the next meeting scheduled for February 2023.
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