Gold Is Telling Us That Market Volatility Is Not Going Away Soon

Gold Is Telling Us That Market Volatility Is Not Going Away Soon
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Last year was a tale of two markets when it came to gold. In January and April, the price approached its level of critical technical resistance, but it moved significantly lower following the April peak leading to a decline to the lowest price since early 2017 in mid-August.

The yellow metal that has captivated humans for thousands of years is still an asset that many people believe is the ultimate store of value. Aside from individuals, central banks around the world continue to hold gold as a foreign exchange asset which means that governments consider the precious metal an authentic form of money. In 2018, the world’s central banks were net accumulators of gold with China and Russia increasing their stockpiles. As significant gold producing nations, both have been adding domestic production to their holding rather than selling gold on the international markets. 

Source: CQG

As the weekly chart shows, gold rose to the same level last January and April at $1365.40 per ounce which was a double top technical pattern. The failure of gold to make a higher high likely led to its downdraft that took the price of a low of $1161.40 per ounce in mid-August on the back of a stronger dollar which typically has an inverse price relationship with the yellow metal and most commodities prices. A spike low to just above $1160 led to a recovery, even though the dollar continued to move higher which was a sign of underlying strength for the precious metal. When a market does move lower in an environment of bearish factors, it tends to go the other way, and on January 4 the price of gold probed above the $1300 per ounce level for the first time since mid-June 2018.

Volatility in markets across all asset classes caused by the economic and political landscapes over recent months has caused many investors and traders to go for the gold, and the price has been steadily rising. As of January 14, the price settled at $1291.30 per ounce, less than $10 below the most recent peak in the gold market. Gold is a unique asset. It is a metal and has many of the characteristics of other commodities. At the same time, it is also a means of exchange and financial asset, and central bank holdings validate gold’s role around the globe. Gold is also a barometer for inflationary pressures as well as for fear and uncertainty. The current price level of the yellow metal is telling us that the wild price volatility we witnessed during the fourth quarter of 2018 in equities, bonds, and commodities has not ended and the odds favor a continuation of turbulent market conditions across all asset classes in 2019.

A successful approach to growing our savings and nest eggs requires us to adapt to market conditions. These days, gold continues to flash a warning sign that we are not out of the woods when it comes to price variance in asset prices. Put gold on your radar, the yellow metal is not only beautiful, but it is also is telling us a great deal about market conditions.

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