The gold market has come off Sunday night’s nearly 7-year high of over $1590 per ounce, in a sign that the bulls may be exhausted. The market is still sharply higher, however, trading around the $1565 region in late afternoon action.
The market could have found, or be close to finding, a medium-term top. Oftentimes, a sharp rise higher proves to be short-lived, and prices end up correcting or coming back down just as quickly. For the long-term bulls, however, recent advances in the gold price could be constructive and a symptom of further upside to come in the weeks or months ahead.
The global financial marketplace finds itself walking on eggshells again. The U.S. drone strike late last week that targeted and killed the top Iranian military commander has markets on edge. It is widely expected that Iran will somehow find a way to retaliate against U.S. interests in the weeks ahead. In fact, the current spat could develop into a full-blown war between the U.S. and Iran if the recent string of violence continues. The drone attack by the U.S. last week boosted crude oil prices, which are currently trading at nearly $65 per barrel, the highest level in some 22 months. If further military action is deployed, the price of crude could potentially move much higher. A rapid move up in the value of oil could potentially be another major catalyst for the ongoing global economic slowdown to increase.
U.S. stocks, which were sharply lower in overnight action, staged a 300-point recovery to finish the session higher today. Sentiment in the stock market remains bullish, thus far, despite the increasing U.S./Iranian tensions. That sentiment could turn south quickly, however, if further violence or an aggravation of the situation is seen.
The current situation for gold and other hard assets could be viewed as highly bullish for the long-term. The conflict with Iran will almost certainly take some time to figure out and could end up in war before a viable resolution is found. The ongoing U.S./China trade war is exactly that: ongoing. It is expected that the “phase 1” deal will be signed in about a week. The “phase 1” portion is only a part of any long-term agreement, however, and there are likely many key details that still need to be worked out and agreed upon before a long-term agreement can be reached and implemented. With so much riding on a deal, there is little room for error and any disagreements could set the stage for further delays. There is also the global trend of monetary easing. The U.S. Fed has said that it is basically on hold for now, although the central bank did lower interest rates at three meetings this year. Other nations could look to move rates lower as well or tap into various models of QE in order to try to boost their economies. Whatever the case may be, it seems that the era of easy money is not over and is here to stay for a while longer. The upcoming U.S. 2020 Presidential election and Trump impeachment could also potentially move markets. A democratic victory in 2020 could potentially fuel a large degree of risk aversion and stocks could come tumbling down.
So many bullish factors would seemingly dictate that a large allocation in physical gold makes a lot of sense. The yellow metal is still contained, and now may be the ideal time to get involved before prices challenge previous all-time highs near $2000 per ounce.