This week is one for the record books
As I’m sure you’re aware, equity markets are experiencing some history making volatility. From Monday’s hair raising 1,000 point nosedive in the Dow to yesterday’s 600-point rally, stocks are literally all over the map.
Of course, most of the recent uncertainty stems from China.
With the Shanghai Composite down just over 40% from mid-June, it’s fair to say Chinese stocks are crashing. The remarkable downturn has everyone on Wall Street wondering if China’s economy is about to go in the tank.
Since it’s the world’s second largest economy, a nasty Chinese economic downturn would cause plenty of damage on the global scene.
Now before you sell everything and head for your backyard bunker, you must realize Chinese officials are taking massive action to avoid a crisis. In fact, the People’s Bank of China (PBOC) recently released multiple stimulus measures that may halt the downturn and restore market sanity.
Will It work?
I don’t know. As a matter of fact, no one on Wall Street knows either. All we can do is monitor incoming Chinese economic data to see if economic activity picks up.
But here’s the question we really want to answer today.
Is there a looming gold-market surge due to the economic events unfolding right now?
In case you’re unaware, the yellow metal is typically a flight to safety asset in times of extreme economic uncertainty. True to form, gold rallied sharply from August 6 to the 21.
Take A Look
As you can see, gold rallied just over $70 an ounce in early August as investors fled the equity markets.
But the past few days haven’t been so kind.
Despite Monday’s jaw dropping 1,000 point Dow downturn, gold traded in a tight intraday range around $1,160 an ounce before closing lower on the day. And even though there was still massive equity market uncertainty Tuesday and Wednesday, the yellow metal succumbed to heavy selling to close at $1,125 yesterday.
Judging by gold’s performance this week, it appears investors are not yet ready to fully embrace its “safe-haven” status.
Can Gold Trade Higher In Coming Weeks?
It might- but we’ll likely have to witness something remarkably worrisome in the near future to make it happen.
That’s not all.
Even though gold is trading higher since early August, the same can’t be said for its brethren -- silver, platinum and palladium. In fact, silver and palladium plummeted to new yearly lows the past three days.
The extremely poor performance from silver and palladium further confirms ‘gold fever’ isn’t quite ready to catch on.
Bottom Line
Despite the remarkable happenings in the marketplace the past week, gold does not appear ready for massive upside breakout.
However, past performance does not guarantee future results. If the other shoe really drops in China in coming weeks, and another market panic ensues, gold could finally see the bullish push it needs to really bring in the big money.
A technical break above $1,175, and then $1,250 an ounce, on heavy volume is the first sign I need to really get excited about big upside in gold.
Until Next Time,
Justin Bennett
Commodity Trading Research