Gold Succumbs to Dollar Revolution as Prices Plummet
Gold experienced a dramatic decline this past week as it succumbed to the surging strength of the US dollar. The precious metal saw its parabolic protection shattered as it penetrated the crucial support level at 1905.2, which swiftly confirmed a trend reversal from long to short. The drop in gold prices was further solidified as it settled at 1865 by the end of the week.
This anticipated downturn was forecasted in previous missives, with a graphic illustrating the weekly bars of gold hinting at a potential guillotine awaiting the yellow metal. After 28 straight weeks of gains, gold’s impressive streak has now come to an end. Although silver’s trend remains barely long, it is likely to follow suit and change direction come Monday’s opening.
The rise of the US dollar has played a pivotal role, pushing the Dollar Index to its highest level since November of the previous year, reaching 106.540. If the dollar manages to close the gap and reach its historical high of 129.050, US interest rates would rise significantly. However, recent data showing the Core PCE Price Index remaining well below the Federal Reserve’s target of 2.0% raises questions about whether the Fed will further pause its policies during the November Policy Statement.
Despite the common belief that the strong dollar is responsible for gold’s decline, it is essential to remember that gold doesn’t favor any currency. As demonstrated in 2010, gold can still shine amidst a strengthening dollar, with both the Dollar Index and gold experiencing notable gains. Therefore, other factors may be contributing to gold’s recent struggles.
Moreover, gold and other equities related to the precious metal have faced mounting pressure since mid-year. As we close the month, a year-over-year comparison shows mixed performance among gold-related assets. The VanEck Vectors Gold Miners fund (GDX) and Franco-Nevada (FNV) have managed to stay resilient with double-digit gains, while others like Pan American Silver (PAAS) and Newmont have suffered losses. This unfavorable trend casts a shadow over the overall performance of the gold market.
Turning our attention to the broader market, it is worth noting that oil has overtaken the S&P 500 as the top-performing asset, a significant shift in the rankings. The Doggy Dollar, despite not being a BEGOS component, has secured the third spot, while bonds remain at the bottom due to the ongoing Year of the Yield.
The S&P 500, in particular, faced challenges throughout the traditionally turbulent month of September. However, the more significant concern revolves around the valuation of equities. Finally, major financial publications are acknowledging this problem, as Barron’s recently highlighted the issue of earnings in the stock market. This recognition comes after years of warning signs and constant monitoring of the overvalued state of equities, including the S&P 500.
In terms of economic performance, recent data reveals a mixed picture. While there have been slight improvements in personal income and durable orders, home sales, both new and pending, have suffered a significant setback. In addition, the Chicago Purchasing Managers Index continues to reflect regional economic contraction for the 13th consecutive month.
As we analyze the performance of the BEGOS Markets over the past month, it becomes evident that the majority of assets have struggled. Dollar strength has had a significant impact, draining the value of various market components. However, the risk-free nature of US T-Bills, which offer an annualized yield of 5.300%, remains an attractive option amid the uncertain market conditions.
Lastly, we must not overlook the compelling value proposition of gold. Despite the recent price decline, gold is currently trading at only half its estimated value if we consider the dollar’s devaluation. This reinforces the notion that gold remains a vital asset to hold in one’s portfolio.
In conclusion, gold’s recent decline due to the Dollar Revolution has shaken the market, with silver likely to follow suit. The rise of the US dollar and its impact on gold prices cannot be ignored, but it is crucial to consider other factors contributing to gold’s struggles. As the BEGOS Markets face challenges, oil has emerged as the top performer, while equities suffer due to overvaluation concerns. Acknowledgment of this issue by financial publications sheds light on the state of the stock market. Amidst these fluctuations, gold’s value remains undeniable, making it an asset worth considering in times of uncertainty.
