Gold: The Bull Has Not Ended
The Gold Report | Oct 07, 2016 01:50AM ET
This week's drop in the gold price has spooked many investors, says money manager Adrian Day, who provides his perspective on the volatility.
Let's cut to the chase: we do not think the drop in gold earlier this week marks the end of this bull market. Why did gold drop? First, I think it's fair to say that, technically, gold was looking increasingly vulnerable over the past several weeks. Many new-time buyers were getting nervous. Against that background, it did not take much for gold to fall.
Interest rate talk again
The "collapse" in the gold price has been attributed to hawkish comments from Fed officials. This contributed to the negative sentiment, but in reality it is much sound and fury, signifying nothing. These two Fed officials are well known to be hawkish, and the market was in any event already expecting a rate increase before the end of the year. This was nothing new. Moreover, William Dudley, president of the influential New York Fed, had the day previous urged caution in raising rates. Why did not that have a positive effect on gold? Because the sentiment had shifted.
Equally important, I believe, was the rally in the dollar, only partially attributable to the Fed comments. The British pound fell sharply again (following a "hard-Brexit" talk by the Prime Minister), as did the yen, on concerns about the efficacy of the National Bank's policies.
Stay the course; it's early days yet
The fundamentals remain intact. Monetary and interest rate policy remain very loose around the world, and that would remain true after the Fed increases the Fed Funds rate another one-quarter percent. Last year, gold fell sharply into the expected rate increase, and dropped further when the cut was announced, then immediately reversed and moved up. The same could occur this year. One quarter point does not stop the gold bull market.
The bull has not ended. Over the past couple of decades, when gold stocks turn, they typically move 150% to 300%. What we have seen so far this year would be one of the shallowest and shortest up-moves of the past 30 years. So we continue to hold and would add to positions. After a dramatic fall such as we saw earlier in the week, one should not expect gold to immediately reverse and go back to where it had traded. It may take a little while to settle down (though with the U.S. election approaching, that may not be too long). So we would buy on extreme weakness, place below-market orders, and look for good opportunities to buy.
Get The News You Want
Disclosure: 1) Statements and opinions expressed are the opinions of Adrian Day and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. 2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.