Gold rebounded from Mondays 2% dip after Saudi Arabias oil minister ruled out any imminent production cuts, slamming oil prices by almost 5%. The announcement also was a drag on stocks, with the Dow Jones, S&P 500, and Nasdaq indexes all down more than 1% each in Tuesday afternoon trading.
The ongoing catastrophe in the oil sector has caused JPMorgan Chase to set aside another $600 million to guard against losses from its loans to energy extractors and producers. It also warned that its prepared to reserve as much as $1.5 billion in buffer cash if oil prices remain around $25 a barrel.
As long as gold can hold above the key $1,200 level, its bullish momentum is intact. In fact, on Friday, the yellow metal formed an ultra-positive technical indicator called the golden cross, in which its 50-day moving average closed above its 100-day moving average.
Thats seen as bullish by some traders and analysts who look to chart patterns for price direction, Bloomberg reported. Its only happenedwhen both measures were trending higher 10 times since the turn of the century, with prices rallying an average of 2.8% in the subsequent 90 days.
Fed rate-hike pace hits roadblock: The rising probability that the Fed will keep interest rates lower for longer, even despite last Fridays uptick in the Consumer Price Index inflation gauge, is supporting gold.
Were positioned for a bull market in gold, said Jeff Sica of Circle Squared Alternative Investments. With the amount of volatility in the market, theres going to be continued strength in gold. Its obvious that even if the interest rates do move, theyre not going to move up quickly, and theres greater likelihood that they may even stay the same or decline.
The biggest story has been the strength in gold around this, more than anything else, added Rob Haworth of U.S. Bank Wealth Management. While its been haven flows, its also been retail investors looking for anything moving higher because its been a struggle last year to be an owner of stocks or any other risky assets.
U.S. manufacturing remains mired: Meanwhile, ahead of Fridays U.S. GDP report, new economic data confirm the growing pessimism over the American financial outlook.
The Conference Boards consumer confidence gauge fell to its weakest level since July 2015. Meanwhile, the Richmond Federal Reserves manufacturing survey dropped to three-year lows, and the Case-Shiller home-price index missed expectations.
About the only bright spot was in existing-home sales, which unexpectedly rose in January. But even that news was tempered by a warning from the National Association of Realtors that home prices are still rising too fast because of ongoing supply constraints.
Many risks remain, bank says: All these drags on the U.S. economy suggest that any short-term gains in stock prices are reason to cash out and redeploy capital into precious metals. The Geneva Swiss Bank is one firm doing just that.
In declaring the recent stock rebound a dead-cat bounce, the bank likened the currency landscape to February 2008 and wrote, We believe that this was just a bear-market rally driven essentially by hedge funds covering their shorts. Many risks including China/CNY, oil supply, U.S. economy, German economy/social situation, BREXIT, earnings growth, high valuations, still remain in mind. Investors are losing confidence in central banks hazardous monetary policies and buying gold as the ultimate hedge.