Gold Shines As Safe-Haven As U.S. Equities Drop Another 2%
(Kitco News)- Safe-haven demand is once again boosting gold prices as U.S.equity markets drop 2% across the board.
“Gold’s safe-haven allure is back,” said Phillip Streible, seniormarket strategist at RJO Futures. “Equities are doing down sharply andinvestors don’t know what to do, so they are turning to gold.”
Safe-haven demand pushed gold prices to its highest level inthree months. While off its session highs, the gold market is still holding onto modest gains; December gold futures last traded at $1.235.70 an ounce, up0.91% on the day.
Looking at equity markets, according to reports, the Dow JonesIndustrial Average is seeing its worst monthly decline in three years while the S&P 500 is seeing its worth monthly performance in seven years.
According to some analysts, the sharp downturn in equities isrelated to the ongoing budget crisis in Italy. In an unprecedented move onTuesday, the European Union rejected Italy’s budget, which proposed a deficitof 2.4% of GDP in 2019.
Streible added that the geopolitical uncertainty in Europe isweighing on equity investors because weak global growth could trickle throughto the U.S. economy.
“You can see that a lot of people are worried right now. They aremoving to cash and safe-haven assets like gold,” he said.
George Gero, managing director with RBC Wealth Managementalso sees gold benefiting from growing risk-off sentiment in the marketplace.He added that along with higher prices, the yellow metal is seeing high tradingvolume and growing open interest.
“Asset allocators are now forced to look at gold as theusual additional alternative to hedge volatility in stocks,” he said.
But some analysts are wonderingif this is as good as it gets for gold in the near-term. David Madden, marketanalyst at CMC Markets, said that while weak equities are supporting gold, themarket still has a lot more work to do.
“Things are finally looking upfor gold,” he said. “But I think this is the best environment that gold isgoing to get.”
Madden added that the interestrate play is still a bigger driver for gold prices than the safe-haven play. Henoted that the Dow Jones Industrial Average has to drop hundreds of points forgold to rally one percent.
“That is just not sustainable,”he said. “We are in late October and pretty soon investors will be talkingabout a December rate hike and I think that could put a cap on gold prices,” hesaid.
Streible, on the other hand, was a little bit more optimistic ongold prices while also warning investors to be cautious in this currentenvironment.
He added that he recommendsinvestors buy at the money call options if they think gold prices have room tomove higher.
By Neils ChristensenFor Kitco News
Follow neils_C
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.  |