The Dollar Index Is at Year Low and Gold Rallies This Week
Shining Week for Gold as Dollar Index Is at Year Low
The dollar index is at year low this week. The last time it was this low was June of last year, and it’s currently in a two week losing streak. Gold was up all week, and closed the week just shy of the $1,270 mark. The dollar went on a roaring tear after President Trump’s election due to his promises of infrastructure and defense spending and the job creation it would do for the economy. However, that strength is now retreating. Political deadlock and conflict are making markets wary of whether Trump’s agenda will be realized. Hence, the falling dollar was a big driver behind gold’s upward climb this week.
What this means for investors: Gold could see significant upside if the dollar keeps slipping. It’s one of the top reasons to think about buying gold right now. Monetary policy, as the Fed begins to unwind its balance sheet, are also going to continue to weigh on the markets. Gold has been on a rallying streak for the past couple of weeks now, and those investors who bought during the dip a few weeks ago are glad they did. It could be a continued upward climb for some time now for gold prices.
The VIX Hit a Historic Low this Week, But One Expert Warns Against Trend
Nobel Laureate economist Robert Shiller warned this week that we are in the quiet before the storm. The S&P, Dow Jones, and Nasdaq hit some fresh highs, while the VIX (volatility index) was at a new low. While this sounds like it should be ideal for equities, more and more strategists are cautioning that the stock market euphoria is about to crash. Shiller – whose market bubble predictions in the past have landed him a Nobel Prize in Economics – thinks current valuations are too high, and we are approaching an impending correction. The price-earnings ratio is at a level that has only been higher right before the Great Depression and the late 1990s, which Shiller finds worrying.
What this means for investors: If Shiller’s right again, this is the time to protect with gold while prices are still relatively low. Other analysts are also advising that U.S. equities are approaching their peak, and to start moving out. Gold would be a hedge against the correction Shiller is predicting.
Price of Gold Nearly on Par with Production Cost of Gold
An ounce of gold recently has been selling at nearly the same as production cost. That is, it is costing about the same to mine an ounce of gold out of the ground as to sell it. Of course, this means profits for gold mining companies right now are not particularly spectacular, but it also reflects a disparity in current gold valuation. Not all gold that is used today comes from mines – much is recycled from old jewelry, electronics, etc. However, the finite amount of gold in the ground means that as it becomes more difficult and expensive to mine, the price will go up on the decreasing supply.
What this means for investors: Gold is “on sale” in that the price is likely not reflecting the short-term supply. It’s worth considering your diversification options now for both gold and silver.
What Is Silver Doing Lately?
The technical analysis of silver is looking bullish long term. It was up this week too, like gold, but it also jumped around slightly more sporadically, closing out the week at $16.75. Silver is driven by many of the same factors as gold, but in addition, it has been experiencing heightened demand from the tech sector for its use in technology like touch screens, solar panels, medical devices, and many others.
What this means for investors: For those investors who can’t afford gold right now, silver is always an attractive option. The past couple years, more and more investors have been diversifying with silver as it is, at times, outperforming gold. It probably won’t jump as fast as far as gold (especially in the short term), but it is certainlyl a lucrative long-term hold.
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Here are some articles from the web discussing the topics in this week’s post:
Shining Week for Gold as Dollar Index Is at Year Low
The VIX Hit a Historic Low this Week, But One Expert Warns Against Trend
Price of Gold Nearly on Par with Production Cost of Gold
What Is Silver Doing Lately?
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.
