3% Drop In U.S. Equity Market Could Spark Gold Rally - Analysts
Editor's Note: The article was updated to reflect further weakness in equity markets, which are down more than 3% across the board
(Kitco News)- Equity markets are breaking down and that could be the catalyst needed to light a fire underthe gold market, according to some analysts.
Ahead of the close, theS&P 500 and Dow Jones Industrial Averagehave dropped significantly with both falling3% during the session; The Dow Jones is down almost 800 points. According to reportsequities are seeing their biggest five-day drop in nearly two years. The NasdaqComposite Index is the worst performer, falling 3.5% on the day.
Meanwhile, gold prices are trading near session highs. December gold futures last traded at $1,196.70an ounce, up 0.44% on the day.
In the currentmarket environment, many analysts are keeping an eye on the $1,200 an ounce levelsince it represents the first hurdle gold needs to clear.
“Right now goldis up but compared to the drop in stocks it’s still just trading at its base,” saidColin Cieszynski, chief market strategist at SIA Wealth Management. “Gold needsto at least clear $1,200. If it doesn’t, that is not a good sign.”
However, despitegold’s slow start, Cieszynski said that he is expecting to see higher prices asthis is the perfect environment for the yellow metal.
“We haven’t seenthis in a long time, equities are down and volatility is up. Capital isstarting to find its way back into the old school havens,” he said.
Jim Wyckoff,senior technical analyst at Kitco.com, said that there is a very good chancegold regains the $1,200 level as he thinks this is just the start of acorrection in equities.
“There aretechnical and fundamental signs the U.S. stock indexes have put in at leastnear-term market tops, if not major market tops,” he said.
George Gero, managing director with RBC WealthManagement, said that gold’s rally isn’t bigger because he suspects that someinvestors and traders are selling the liquid asset to maintain margins in theirequity accounts.
However,he added that there are plenty of bullish factors that will continue to supporthigher gold prices.
“We still have midterm politics, westill have currency and other dislocations in Italy, Greece, Brazil, Argentina,Venezuela and now China adding to economic headlines,” he said. “All this meanshigher prices for gold.”
Cieszynski alsopointed out that while the breadth of the equity selloff is a bit shocking, themove is not a major surprise. He added that equities have been pricing inperfection ahead of the third quarter earnings, but companies are facingsignificant issues like a stronger U.S. dollar and rising interest rates.
He noted thatinvestors were pushed out of their complacency after bond yields pushed totheir highest level in seven years.
“Faced with astronger U.S. dollar and rising interest rates something had to give and we areseeing the result,” he said. “Gold should do well because investors just don’thave a lot of other options.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.