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Gold: 2 Sides Of The 'Fear Coin'

Mar. 01, 2018 9:24 AM ETFXI, IAU, UUP1 Comment
Clif Droke profile picture
Clif Droke


  • Gold's main driver, fear, is a double-sided coin.
  • Gold's price can suffer during stock market declines, but not for long.
  • Latest bout of global market jitters paves the way for next gold rally.

It's widely known among gold investors that one of the metal's biggest drivers is safety-related demand among investors who worry about the outlook for equities or the economy. Indeed, we've witnessed numerous instances of the "fear factor" pushing gold prices higher in the nine years following the credit crash.

Yet there's another side of this proverbial coin which bears discussion, namely the fact that gold also tends to fall in sympathy with stocks during periods of major equity market weakness. In this commentary I'll explain the seeming paradox of why gold is both a potential buyer's risk during panicky markets as well as a smart safety bet during periods of investor uncertainty. I'll also show that once the immediate selling pressure which has plagued the market this week lifts, gold should benefit from it even more than global equities.

Gold prices were steady on Wednesday after the previous session's 1% drop following market's concerns that the Federal Reserve would raise rates four times this year rather than the previously expected three. Meanwhile the U.S. dollar index hit a five-week high, buoyed by Fed Chairman Powell's optimistic assessment of the U.S. economy during this week's Congressional testimony.

Spot gold was essentially unchanged at $1,317 on Wednesday after finishing around 2 percent lower for the month of February. April gold futures settled $1 lower on Wednesday at $1,318. Although gold prices held steady for the day, the rising dollar index is keeping the pressure on gold and preventing the metal from breaking away from its 6-week lateral range.

From an immediate-term (1-4 week) perspective, one of the most important considerations besides the strength of the dollar is the relationship of gold's price to its 15-day moving average. This indicator is used to delineate not only the direction of gold's immediate trend but also its strength, which is

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

The Freak profile picture
UUP posted a bearish outside reversal today, see if that marks the end of the USD bounce, Feb 1 to March 1. SLV and GDXJ posted outside bullish days today.
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