Tags: macroeconomic | trade | s and p | manufacturing

Gold Rally Confirms Forecasts 

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Wednesday, 28 August 2019 04:04 PM Current | Bio | Archive

Back in June, I published an investment forecast which suggested precious metals markets had the potential to continue rallying and that gains in gold would likely outpace performances in the S&P 500.

These views were actually more controversial than they might have seemed at the time, as stocks were trading at their all-time highs while gold was essentially caught in a sideways trend that had lasted for more than six years. However, gold prices gained by nearly 10% while valuations in the S&P 500 have fallen by almost -3% in the periods that have followed.

The ability to spot major trend changes in the market has its challenges. However, these are the periods in which investors are truly able to "buy low and sell high" in ways that actually generate gains in a trading account. As always, it’s important to watch for changes in the macroeconomic fundamentals. This is inevitably where true investor sentiment trends get its fodder.

As I explained in my June commentary report on the precious metals space:

“The prospect of lower interest rates has emerged as stock markets are trading at record highs and trends in private-sector jobs data point toward decade lows. Ultimately, these divergences suggest investors might continue to adopt a more protective stance as a way of guarding against potential declines in the stock market.”

These macroeconomic factors will continue to be the key drivers that play a role in determining the market valuations for both equities and the precious metals complex.

In July, market concerns largely diminished as the U.S. economy showed gains of 164,000 in the nonfarm payrolls report. This aligned with analyst expectations and the unemployment rate held steady at multi-decade lows.

However, trends in the manufacturing sector show a slowdown in the factory workweek and the nonfarm payrolls figures from February and May of this year were alarming misses from a macroeconomic standpoint.

If these truly are red flags for the market, investors will likely continue to keep price activity supported for metals like gold, silver, and platinum. Gold mining stocks have displayed impressive gains, and this suggests trends within the precious metals complex remain healthy.

Of course, this doesn’t necessarily mean that it’s best to start buying assets as they hit long-term highs. Lack of patience is generally the first mistake that’s made in the destruction of the average trading account.

But if we are going to analyze the precious metals space for potential opportunities, I think it makes sense to consider establishing positions in silver. Essentially, this is an asset that’s been something of a laggard amidst all of the broader enthusiasm that has been driving the recent rally in gold prices.

Ultimately, this lack of buying activity could begin to reverse in the months ahead.

As always, the most important factors to watch will be the macroeconomic fundamentals themselves. As long as trade war tensions continue, the potential for uncertainty will remain elevated. If these ongoing discussions begin to make their presences felt in the underlying employment figures, the latest rally in gold should be able to maintain its current strength while sending valuations higher.

Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.

 

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RichardCox
The ability to spot major trend changes in the market has its challenges. However, these are the periods in which investors are truly able to "buy low and sell high" in ways that actually generate gains in a trading account.
macroeconomic, trade, s and p, manufacturing
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2019-04-28
Wednesday, 28 August 2019 04:04 PM
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