As the world will be aware, the US Fed Open Market Committee (FOMC) has yet again delayed any decision to raise interest rates and the dollar and gold both reacted accordingly. The dollar index fell while gold rose – although the rise in the latter was primarily just a direct response to the fall in the former – not a specific indicator of much in the way of increased interest in the yellow metal, at least initially. But this morning, with European markets open, gold has indeed risen at the time of writing, and while the dollar has continued its fall, so far gold has moved up by a greater percentage than gold has fallen indicating perhaps something of a start in change in investment sentiment.
What is perhaps more surprising – and another indicator of sentiment change – is that post the Fed announcement, U.S. markets fell back – continuing their recent downwards trend. One might have assumed they would have risen on further postponement of any Fed commencement of rate tightening, but the markets may be taking this as an indicator that the U.S. economic recovery is perhaps not all the investment public has been led to believe. Indeed some indicators also released yesterday were indeed weaker than anticipated.
Asian markets overnight were a little mixed – Shanghai was up by a very small percentage as was Hong Kong’s Hang Seng but Japan’s Nikkei fell – and in Europe the major indexes also opened lower. The Dow has taken a sharp downturn this morning too and is around 8.5% down year to date and 10% down from its May peak. With losses exceeding gains quite substantially over the past two months there is an element of fear in global stock market investment that we could be due for the increasingly frequently predicted market crash following the prolonged 6-7 year bull phase following on from the massive 2007-2009 falls when the Dow plunged around 50% over 16 months.
Over the past 3-4 years gold has definitely been out of favour with Western investors with the price seeming to slip continually down to a low point of just below $1090 at the beginning of last month. Major bank analysts subsequently fell over each other to predict a continuing price fall – down to $1000 or even less – but at least so far there has been no indication that this is likely and gold has recovered from its lows to trade consistently back above the $1100 mark. Where it will go from here we don’t know – but with the seemingly increasing nervousness among major stock market investors, the yellow metal’s safe haven appeal may well be on the rise again.
The Elliott Wave chart analysts are mostly predicting sharp rises as, of course are those ‘always bullish’ commentators. Gold holders will hope they are right after 4 years of mostly declining prices.