The markets seem to have picked up right where they left off at the end of last week. Last night saw U.S. stock index futures sharply lower, with the Dow dropping by some 700 points. Those declines did not stay, however, as investors saw opportunity throughout the trading session. Stocks are now sharply higher in afternoon trade.
The see-saw in equity markets has left the gold market with little to bank on one way or the other. The yellow metal is down over $5 per ounce in afternoon trade while maintaining prices well above the $1700 level. The theme for today appears to be investors worrying over a reduction in total consumer demand for precious metals due to lower economic output.
The notion that U.S. stock markets have come back too hard too fast is also putting a damper into the marketplace. Many people are likely wondering how the Nasdaq reached a new all-time high last week with swelling unemployment and a good portion of the economy still offline. Although stock markets do tend to look into the future, it is difficult to come up with a scenario in which fresh all-time highs for equities are justified.
The ongoing COVID-19 pandemic is also playing a role in markets and investor psychology. As the pandemic appears to be in the midst of a resurgence, some states are seeing a rise in new cases as the U.S. looks to get things reopened. Reported infections in the U.S. are now over two million, and a strong resurgence of the virus could potentially put the U.S. economy on hold for months or longer.
The economy has already seen significant damage from the virus and lockdown. The Federal Reserve recently gave a very somber outlook when it had its latest FOMC meeting on rates last week and investors are likely to pay close attention to Fed Chief Jerome Powell’s remarks this Tuesday and Wednesday on the economy during his two days of congressional testimony.
The days, weeks and months ahead could be vulnerable to heightened volatility across markets, especially if the amount of COVID-19 cases starts to rapidly expand further. The gold market could potentially benefit from the unknowns in the marketplace and could remain bought up on any significant dips.
Another bullish factor for the gold market may be recent weakness in the U.S. Dollar. The greenback is lower again today and could potentially see further selling as the U.S. Fed embarks on what could be an extended period of ultra-low rates combined with expansive QE measures. If the dollar’s sharp trend lower remains intact, it could fuel significant buying in gold and other hard assets that are denominated in dollars. Dollar weakness as well as fears of rampant inflation down the road could set the stage for a return by gold to previous all-time highs near $2000 per ounce or well beyond that level.