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Gold Investors’ Flight to Safety May Suddenly Screech to Halt


Jan. 12 2016, Updated 11:58 a.m. ET

Investors stockpile gold

As we know, since the start of 2016, investors have been pulling the lid off gold prices and embarking on a flight to safety amid global turmoil. During the first week of the year, the unexpected currency devaluation by the PBOC (Peoples Bank Of China) sent jitters through world equity markets and then, subsequently, set markets rolling. This fall in stock prices, in turn, gave a boost to the precious yellow metal, and gold rose almost 4% at the start of the month. Added tensions from the Middle East and North Korea further gave a little help, too, in the slight gold rise during the first week of 2016.

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However, as we discussed in Part 1 of this series, gold lost its luster on Friday, January 8, after four straight days of gains. Gold dropped again by 0.02% and remained shy of the $1,100 mark on Monday, January 11. Still, a likely resistance may be faced by the precious metal at the 100-day moving average target of $1,111.4 per ounce.

The DXY currency, which prices the US dollar against six major world currencies, fell by a marginal 0.03% on Monday, January 11, but has gained about 0.07% since the start of the year. A further rise in the US dollar, given the strengthening of the US economy, could pose further weaknesses for dollar-denominated assets like gold, silver, and other precious metals.

The effect on ETFs and South African miners

Thus, while the strength of the US economy can be seen in its currency, the rising dollar could likely harm not only gold but also other gold-based investments, including leveraged ETFs such as Direxion Daily Gold Miners (NUGT) and the Direxion Daily Junior Gold Bear 3X (JDST). Notably, NUGT fell by 12.1% on Monday, January 11, while JDST rose 10.8%.

Meanwhile, the majority of major mining companies ended the same day in the red—except for South African miners AngloGold Ashanti Corporation (AU), Sibanye Gold Corporation (SBGL), and Gold Fields (GFI). These three companies rose by 0.13%, 2.9%, 1.9%, respectively, on Monday, January 11. But this increase in the share price of these mining companies most likely has backing from the weak South African rand.

Now let’s take a look at what has happened so far in 2016 with platinum and palladium relative to worldwide auto sales.


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