What happened there? Since yesterday, the Gold price, the Oil price and the Stock markets have gone down simultaneously. This can be seen in the chart below, where Gold, Oil and Dow Jones on CFD basis are shown since Thursday. Since yesterday at 3:30 p.m., when the cash market for US stocks opened, the price has gone down. The Dow has dropped 580 points so far. WTI oil has lost a good $1.50 since then. And the price of Gold has so far lost 14 Dollars.
No strength in the Gold price, though?
And then yesterday we wrote about a real strength in the price of Gold. Well, how is it that these three asset classes decrease so parallel? With the correlation between Stock markets and Oil, it is clear. If the fear of the ever worsening corona crisis continues to grow (as it has actually been happening since yesterday), the economic outlook darkens. This is of course bad for corporations, but also bad for Oil demand. And the price of Gold? While yesterday at noon all the world (including us) thought that the price of around $ 1,815 was finally the breakthrough to the top, the precious metal is again showing weakness, together with the other markets. The US Dollar, rising since yesterday afternoon, also had a negative effect on Gold!
But we think: You should not give up the precious metal yet as a bull! What happened away from the US Dollar? Perhaps the following current commentary by Ipek Ozkardeskaya from Swissquote will shed some light on this. The Gold price fell back to 1,795 Dollars because investors liquidated their long Gold holdings at the same time as their risk positions (in stocks). The simultaneous sell-off of stocks and Gold in a risky environment had become a normal behaviour and had not affected the safe-haven value of Gold in the medium term. Therefore the overall outlook for Gold remains optimistic despite an undesirable positive intraday correlation with stocks.
Much to much in the falling Gold price?
And yes, this phenomenon was also seen in the big stock market crash in March. Investors sold Gold in panic, because they needed money quickly. Especially for margin calls on the stock market. But now, when the stock markets fall back by a few hundred points, do you have to immediately and reflexively drive down the price of Gold? Was that exaggerated, and can Gold now take another run at higher price levels again? Decide for yourself how it will continue. Because yes, we still do not have a crystal ball.