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USAGOLD/Peter Grant/06-21-17
Gold has turned more consolidative, having perhaps found support ahead of trendlines and the 200-day moving average. After closing lower in 8 out of the last 10 sessions, the yellow metal was arguably oversold on a short-term basis and is due for a bounce.
Despite continued firmness in the stock market and assurances from the Fed that all is well, there remains an underlying air of uncertainty that is helping to underpin the yellow metal with some safe-haven interest. That uncertainty may be springing from an economy that simply is not firing on all cylinders. Or perhaps it’s the heightened geopolitical tensions or a President that has been hamstrung in forwarding his economic agenda. Maybe all of these factors are weighing on sentiment.
Some heavy hitters in the market are issuing their own words of caution:
BofA: "markets are very weird"
JPM: "low vols face catastrophic losses"
DB: "cataclysmic events are coming"
GS: "it will end in tears"
— zerohedge (@zerohedge) June 21, 2017
Oil prices remain a significant area of concern as well. WTI continues to tumble, reaching new 7-month lows below $42.50, despite bigger than expected inventory draws. Crude remains on track for a drop back to $40. Below that, the 13-year low from last year at $26.06 would have to be considered back in play.
Historically, lower energy prices were thought to be a boon for the economy. In recent years however, that effect has been muted at best and nonexistent at worst. And that too suggests there is some underlying systemic weakness that simply can not be reversed with easy money and cheap energy.
When that systemic weakness manifests into a recession, it may end up being far worse than the Great Recession of 2007/2008. The severely frothy stock market may indeed end in tears. Prudent investors might consider legging out of equity exposure and moving into undervalued gold.
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