Gold and stocks usually move in opposite directions, but on Tuesday, both asset classes were swimming higher with the tide.
Chinas 6% overnight stock slump helped buoy gold prices early Tuesday, and the price advanced by about 1.5% as the day progressed, topping $1,120 to hit three-month highs unseen since early November. Silver also gained about 2%, reaching six-week peaks near $14.58.
Whats driving gold now? As the Federal Reserve started a two-day meeting Tuesday, many analysts are banking on the central bank turning dovish because of the growing global economic slowdown.
Feds rate-hike pace to cool: Fundamentals continue to turn more favorable with lower bond yields, a slowing pace of U.S. rate hikes, and underinvested funds all supporting the move higher, Saxo Banks Ole Hansen told Reuters.
A note from HSBC also suggested that U.S. interest rate futures indicate the Fed may only raise rates one more time this year.
James Cordier of Optionsellers.com agreed, saying, The premonition that four rate hikes are supposed to happen in 2016 are dwindling down to two or maybe one rate hike, and thats giving gold a boost.
And in widely disseminated comments, DoubleLine Capital bond guru Jeff Gundlach warned that if the Fed doesnt back off its hawkish rate-hiking path, the markets are going to humiliate them.
But dont necessarily assume that stock prices will continue to rally. Confirming what former Dallas Fed chief Richard Fisher said earlier this month namely, that the central bank juiced a tremendous stock market bull run with money printing GOP presidential candidate Donald Trump repeated a warning that stocks are in a bubble.
Were in deep trouble. The countrys a mess, Trump told ABCs Good Morning America program. Were in a bubble. And, frankly, if theres going to be a bubble popping, I hope they pop before I become president because I dont want to inherit all this stuff. Id rather it be the day before rather than the day after, I will tell you that.
Gold easily at $1,400 in time: Whats not in a bubble? Gold.One of the grand old men of the gold-investing world just issued a bullish statement on golds prospects, partly because he sees a renewed interest in bullion from Wall Street.
I think gold actually is going to start to stabilize, RBC Capital Senior Vice President George Gero told Bloomberg.
Im guessing (gold goes) higher this year; Im guessing probably higher the next couple of years. I think what were seeing this year are new factors. For five years the funds did not need gold or want gold because they were very happy with equities. For the first time in many years the fund managers that have really not been interested in gold are going to become interested in gold if we hold this $1,100 area. Also, gold has been acting like gold should as a contrarian to the stock-market volatility.
I think gold can get over to the $1,400-$1,500 area easily. I dont think thatll be a problem in the next few years, but I think its going to do that slowly this time.
Gero thinks the Fed is likely to be more dovish at its meeting this week because look at all the job cuts. Sprint today announced (layoffs); Walmart is closing stores, Macys closed stores, banks are laying off people. So while we had a beautiful 5% jobs figure, that may not continue either.
Stay tuned for Wednesdays announcement from the Fed concerning interest rates and the general state of the U.S. and global economies. If the Fed sounds pessimistic on the financial landscape, gold could continue its uptrend higher.