Gold prices are higher today as stocks trade flat, crude oil moves lower and the dollar index falls. Being the last trading day of the month, there is some short covering and bargain hunting taking place in the gold market today.
Sentiment around the gold market appears to be at a bearish extreme. It seems that everywhere you turn, someone is talking about lower gold prices and giving several reasons for why gold is likely to continue to head lower from current levels. Some of the common arguments include:
- Higher stocks
- A higher dollar index
- Rising interest rates
- An improving economy
These factors have caused some of even the most hard-core gold bulls to throw in the towel. Even hedge funds now hold a net short position in the yellow metal…
Many of gold’s bullish market fundamentals remain firmly intact, however. Even with the notion of rising rates, it is extremely unlikely that any significant rate hikes are seen in the near future. While the dollar may be gaining ground in recent months, some analysts would argue that the greenback is built on a house of cards, and will at some point resume its long-term decline.
While the economy has shown some signs of improvement, it would seem that it is still a long way off from being what might be considered “robust.” This is exactly why the Fed likely cannot raise rates too dramatically anytime in the near future.
The same might be said for the stock market. U.S. stocks are now in their seventh year of moving higher, and while anything is possible, it would seem likely in our opinion that at some point the bubble will burst.
Has gold lost ground? Yes. Could it move lower before finding a long-term bottom? Yes. The reality is, however, that as gold continues to fall producers will likely cut back on production. Gold is a commodity, and as such it derives its direction from supply and demand dynamics.
Those supply and demand dynamics could be coming to head — and doing so faster than people think. In fact, sentiment on gold is so bearish right now that this could potentially prove to be an excellent buying opportunity. Markets have a way of causing the most pain for the most people, and the gold market is seemingly overloaded with bears currently.
We feel it is important to keep the recent downside in gold in the proper perspective. We view this as a pullback within the longer-term uptrend and an excellent opportunity to build on existing gold holdings, or to begin acquiring gold at what we feel are clearance sale prices.
