Market Are Nervous - Which is Great News for Gold
The accompanying chart highlights the divergent performance of gold compared with both the Dow Jones and NASDAQ indices. Gold's price strength has been achieved despite an extremely negative backdrop - with persistent media talk about China’s supposed demand slow-down, hedge fund short positions, expectations of a US rate rise, US dollar strength and dire price predictions of a fall to $900/oz. The reality is that true investors have once again used market weakness as a tremendous buying opportunity. Furthermore, markets might finally waking up to the fact that an increase in US interest rates (even if it happens in the near-term), won't necessarily be negative for gold, which has been stuck in a lackluster trading range as the US Fed plays the “will we, won’t we” game. The market reality is that any eventual Fed interest rate increase is likely to be very small – likely in the vicinity of a mere 0.25% initially - which would still leave rates comfortably in negative territory in real terms. Historically, gold’s strongest periods of price appreciation have coincided with rising interest rates.
Gavin has been a senior resources analyst following the mining and energy sectors for the past 25 years, working with Intersuisse and Fat Prophets. He is also the Executive Director, Mining & Metals with Independent Investment Research (IIR).