Gold Prices, Yield Curves and Rate Cuts
It’s been a strong year for Gold. Prices have surged during the second quarter (and into the third) with rate cuts, China trade war and the so called inverted yield curve being the catalysts for a flight of money into Gold.
After breaking out of the early year range at the very end of May, spot Gold price has been on a continuous run from $1280 up to a recent high of $1555. It has been an incredible move which has now brought out the Gold bulls with predictions of new all-time highs to come. Whether that happens remains to be seen.
Donald Trump has been in a constant war of words and difference of opinions with the Federal Reserve. Trump thinks the Fed have been dragging their heels when it comes to rate cuts. We have to assume Mr Trump is worried about stock markets on the run up to his next election campaign.
While the commentators are leaning towards more rate cuts to come, it is likely that they won’t be in a continuous sequence. The Fed seems to be leaning towards a slower cut cycle.
The trade war with China and tariffs are being added to goods from both sides. Trump is enjoying keeping the world up to date via Twitter, with a constant commentary about what he intends to tax and how he is making progress. The market responds each time.
Which brings us to the inverted yield curve. This is an indicator which is supposed to have a near accurate prediction of a forthcoming recession. Many are worried about this scenario, and more so since the media began to (needlessly) hype it up. Thus money is slowly flowing from assets such as stocks and into Gold, which is pushing the price higher.
The thing about indicators is this. Just because they were accurate before, there is no guarantee they are in future. All indicators are based on data which has already occurred. In reality they lag.
So whether the yield curve becomes a self-fulfilling prediction due to the insane reaction to it, or whether the recession never comes, we will see over the next 12 month. In the meantime, Gold is super bullish.
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.
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