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(Wallace Refiners) – The gold market appears to represent a sea of stability Monday as prices hold above $1,900 an ounce while equity markets and oil prices see sharp declines.
The gold market is holding steady; December gold futures last traded at $1,906 an ounce, relatively unchanged on the day. However, the S&P 500 is down 2.5% on the day; meanwhile the Dow Jones Industrial Average is down 2.9% on the day. In commodity markets, oil prices are down more than 3%.
For some market analysts, the price action in gold is not surprising as it remains a bastion of strength in an environment that is dominated by low interest rates, uncertainty, and turmoil.
“This is what a safe-haven asset is supposed to do,” said Charlie Nedoss, senior market strategist with LaSalle Futures Group. “Gold is finally starting to act like a safe haven asset as it outperforms everyone. It’s outperforming as the U.S. dollar looks a little directionless.”
The question now is if gold’s relative strength can last as the U.S. inches closer to the Nov. 3 General Election, which is now only eight days away.
Robin Bhar, an independent analyst, said that after what has happened this year, a 2% drop in equities isn’t enough to spook investors to liquidate important assets, like gold, in order to raise capital.
He added that at the same time, because there is so much uncertainty ahead of the election, no investor wants to take a major bet one way or another.
“Gold has been consolidating for a couple of months now, and I think investors who have wanted to sell are out, so we aren’t going to see much lower prices unless something changes,” Bhar said. “If the equity market selloff gets bigger, then we could see investors sell gold to meet margin calls. But even then, we would see a lot of buying interest at lower prices.”
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that gold prices aren’t seeing much action Monday as there is no major bearish sentiment in equity markets.
“I think U.S. markets have gotten ahead of themselves recently, and now investors are using a quiet day to take some profits,” he said. “I think we will continue to see profit-taking ahead of the U.S. election. Investors want to square the books because we just don’t know what is going to happen.”
Cieszynski said that gold isn’t moving because there is no feeling of panic in the market right now.
“If this was a real panic move, then you would probably see gold prices much higher,” he said. “Right now, investors are parking their money is cash and probably thinking they will reinvest again in a week or two.”
Although gold isn’t doing much as U.S. equities see 2% losses, Nedoss said that this underlying strength is a good sign that higher prices could be around the corner.
“Right now, gold prices are holding support right at the 10-day and 20-day moving average. If we close above here, we could look at a move back to $1,928,” he said. “Let’s see if support holds the risk is if equities drop further, then gold could push lower.”
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