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Has Gold Made a Comeback with Market Volatility?

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Gold at a five-month high

Last week turned out to be great for gold prices (GLD). As equity and bond markets continued to struggle, gold made the best of the situation. For the week, gold gained 2.2%—its best weekly gain since the week ended August 24. Gold prices also climbed to a five-month high, cutting their year-to-date or YTD losses to less than 4.5% from more than 10% at their lowest point in 2018.

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Job data underwhelm

The recent US jobs report underwhelmed the market’s expectations with just 155,000 job additions, compared to expectations of 198,000. The sequential wage growth in November was also below the market’s estimates. The soft jobs numbers support the Fed’s dovish rate hike stance. Since gold doesn’t yield anything in terms of income, it struggles to compete when interest rates rise.

Apart from expected Fed softness, the weaker US dollar (UUP) and plunge in equities (SPY)(QQQ) also helped gold prices (GDX). Fears of a potential US recession also gripped the markets as part of the yield curve inverted during the week.

Factors driving gold prices

In this series, we’ll discuss the key factors affecting gold, such as the US dollar, the interest rate (TLT) outlook, current economic and geopolitical issues facing the United States (SPY)) and world markets, and physical buying. We’ll see how each of these factors bodes for gold. In conclusion, we’ll see whether enough support is available for gold prices to rally after lackluster YTD performance.

In the next part of this series, we’ll discuss what “bond king” Jeffrey Gundalch has to say about the market and its implications for gold.

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