Gold futures surged by more than 7% in its fourth quarter as the stock market faces bleak prospects. The US government shutdown shows no signs of ending and has persisted into its second month, Brexit is sending its own shockwaves from Europe, and the US-China trade wars are losing footing once again. The stock market is on the bleeding edge here, and investors are trying to cut their losses.
The only safe haven lies in the relative invulnerability of the precious metals market, case in point, the lustrous gold.
When the government crashes and the dollar plummets, a positive feedback loop sends gold prices hovering above all-time highs. This trend can be proven by observing history. For instance, take the tussle between former President Barack Obama and John Boehner over the debt ceiling that sent gold prices shooting past $1,925 per ounce.
Current gold prices are pushing through milestone after milestone, and are testing resistance at $1,290. Gold prices recorded on Jan 24th are $1,283 for an ounce.
So is gold’s fortune tied to government instability in the US, Europe, and elsewhere? Analysts are more opportunistic about gold’s growth, which is set to improve more so than it already is, even if one were to discount current political standoffs.
The Federal Reserve Policy’s softening stance is also doing wonders for gold. In the past year alone, the Fed has raised interest rates four times and hinted at hiking them more frequently going forward. Then, the Federal Open Market Committee meeting minutes were released, documenting the dovish tone adopted by the Fed chair, Jerome Powell, and hinting that the Fed may not go through with their aggressive policies after all.
Joe Foster, a portfolio manager for International Investors Gold Fund, explained that investors are no longer confident about economic expansion in the US and are turning instead to gold.
Gold has always played a key role as a hedge against economic and political turmoil. Whenever investors seem to lose faith in gold’s fortune, the political climate turns on its head to prove them wrong. The three strong markets, bonds, stocks and housing are all showing signs of weaknesses and investors are desperately looking for alternatives.
For now, analysts predict gold prices to vary between $1,275 and $1,300 for the foreseeable future. It remains to be seen if gold will touch the highs of $1,365 an ounce as it did in 2018, only to come tumbling down.