The gold market has once again failed to extend an upside rally in recent weeks and has since seen some significant selling pressure come into the market. Last Thursday, gold saw declines of almost $20 per-ounce as the FOMO (Fear of Missing Out) rally in stocks took center stage and risk appetite strengthened.
As the U.S. and China seemingly get closer to reaching an agreement over trade, stocks could potentially challenge previous all-time highs. Fresh highs for stocks could pressure gold and other alternative asset classes but may also potentially set the stage for a long-term buying opportunity.
After failing to take out previous resistance in the $1,340 region back in February, the market sank rapidly down to support in the $1280 region. Spot prices quickly rebounded, however, and shot back up to the $1,320 region before faltering once again. The market now finds itself on its heels once again, and support in the $1280 area could potentially give way to a fresh leg lower in price. The market’s 200-day moving average comes in around the $1,250 level and could act as a magnet for price before willing buyers are found again. If that region does not hold, the market could see prices as low as $1200/oz before bottoming out.
The lack of upside follow-through has frustrated gold bugs and has perplexed some market-watchers. The gold market may simply need more time to allow for specific market dynamics such as massive fiscal deficits and weaker currency values to take center stage. Investing or speculating in the gold market may not be a short-term play but rather a long-term bet on the health of the global economy and U.S. dollar.
In the meantime, another significant leg lower for gold could potentially prove to be an excellent long-term value. Recent market tailwinds provided by tax cuts and government spending could begin to fade in the months and quarters ahead. Not only that, but an increasingly-dovish Federal Reserve could fuel declines in the dollar as it holds rates steady or is even forced to start cutting again.
Although the stock market could still have something left in the tank, it is likely only a matter of time before the decade-long bull market concludes. As the risks for global recession rise further, a major stock market reversal could potentially be approaching. The gold market has already shown it can rise despite a stronger dollar but falling equities and a major shift in investor sentiment may hold the keys to higher gold in the months ahead.
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