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Why Gold Failed to Draw a Bid after the Equity Market Sell-Off

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Gold failed to cash in on equities sell-off

After rising ~13% in 2017, gold prices added 3% to their gains in January 2018. The key factor driving gold prices was the weaker US dollar. The equity market sell-off that started on February 2, 2018, after US non-farm payroll data were released, was expected to boost to gold’s safe-haven appeal, but it didn’t.

Gold prices ended February 7, 2018, at a one-month low and were down for the fourth straight session. Due to brighter economic prospects as well as the probability of higher inflation (as evidenced by strong wage growth in January 2018), the US dollar rallied against a basket of currencies. This rally, along with the rise in US Treasury yields, lowered gold’s luster. Moreover, there’s no explicit relation between equities and gold. In a risk-off and volatile environment, usually gold’s safe-haven bids attract investors.

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Gold and miners

Year-to-date (or YTD) as of February 6, 2018, gold prices have risen 2.5%. Among gold stocks, Coeur Mining (CDE) and Goldcorp (GG) have performed the best, with gains of 7.1% and 5.4%, respectively. First Majestic Silver (AG), Sibanye Gold (SBGL), and New Gold (NGD) have been among the worst performers, with YTD losses of 14.8%, 12.5%, and 14.6%, respectively.

Gold’s outlook for 2018

Gold started 2018 on a strong note, in line with the new-year price rallies it’s seen over the last few years. Over the last few days, gold (GLD) has been losing due to the US dollar’s strength.

In this series, we’ll look at fundamental factors such as inflation, the US dollar, interest rates, and the equity market outlook to assess gold’s outlook for the rest of the year. To try to anticipate future gold prices, we’ll also look at technical variables such as the recent Commitments of Traders report. In the end, we’ll summarize our discussion on the outlook for gold.

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