The gold price has remained in a tight range over the last 3 trading sessions as equity markets in the US continue to swing wildly and are now down 10 percent from recent high’s which translates as a market correction.
Some analysts claim that investors are currently sitting on the sidelines to wait and see if this correction in equities is a temporary measure, or the beginning of a much bigger downtrend and when this becomes apparent, the money will start moving back into gold again.
“People need to lose more confidence in equities. Once they see that markets are not going to turn around right way, they will look at taking more defensive positions and I would expect them to turn to gold,” said Jasper Lawler, head of research at London Capital Group.
Analysts from Goldman Sachs also agree that the gold price usually takes time to climb higher after a pullback in the stock market and especially considering the speed of the latest fall over the past few days.
“We find that it usually takes a month or so of equity market drawdown for gold to start to act like a hedge. The most likely reason for this is that gold is primarily a hedge against systematic risk,” the analysts said.
“If a sell-off is brief, and can be attributed to technical factors, then gold reacts less vs. a deeper, longer and more fundamentally driven decline with worsening fundamentals and macroeconomic outlook.” They added.
Thursday’s release of CPI numbers from the US is seen as crucial for the gold price as a round of positive numbers is likely to spark fears of a more aggressive rate tightening cycle from the US Federal Reserve which in turn is likely to see US stocks once again sold off sharply.
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