-- Published: Tuesday, 8 July 2014 | Print | Disqus
By Patrick Foot, financial markets writer at IG. To take advantage of gold movements, learn how to spread bet on gold prices with IG.
So far, 2014 has been an interesting time for investors in all major markets.
Forex traders are seeing usually hyperactive currency pairs quieten down. Equities markets have stabilized and are growing, but with seemingly little reason for a change of behaviour. In commodities, a period of increased global instability has not yet translated fully onto the markets.
The unpredictable, unfathomable movements of other assets have had many commentators predicting an imminent boom for stable investments, even as appetite for risk grows ever faster. But what’s really going on across the markets, and what impact will that have on gold?
GBP/USD, EUR/USD, EUR/GBP and USD/JPY have all seen far less volatility in the first six months of 2014 compared to the first six months of last year. In USD/JPY, last year saw over three times as much spread between the highs and lows of the currency; in EUR/USD it was double and it was 76% and 65% more in BGP/USD and EUR/BGP respectively. Even in the realm of exotic pairs, USD/HUF has been 60% less volatile this year than last.
This has been down in part to the reluctance of most major economies to raise interest rates and end tapering, a course of action that has actively weakened currencies to combat low inflation: in spite of increasing signs that economic performance is improving in several countries. The USA has seen unemployment falling and non-farm payrolls figures that point to a boom after the slump brought about by an earlier cold snap. Over in Great Britain, the housing market is picking up speed rapidly.
Of course, an overly calm forex market is not likely to inspire many investors to turn towards gold.
But as rate rises become increasing likely, and with the Federal Reserve indicating that loose monetary policy is here to stay, we might see some more forex volatility before the year is out.
Much has been made of the stunning performance of US indices in recent months, with the steady undulating progress of 2011-12 turning into a straight line upwards. Both the S&P 500 and the Dow Jones have posted just three negative months since the beginning of 2013, and both indices have so far been defying the warnings of bears with impressive consistency.
Of course, wariness is an understandable and probably commendable position to take when markets are trading at over 20% higher than their previous peaks. The longer this run of good form and good news from the US economy continues, however, the more those investors will be persuaded of this strong performance’s legitimacy.
It would not be wise to discount other markets, however. The DAX has also been impressing of late, reaching a record €1000 high last month after growing 27.2% in the last 18 months (actually slightly more than the Dow did in the same time frame).
Recent developments have only confused matters further, as an incredibly strong non-farm payrolls report contributed to a fillip for the US dollar and US indices. The view held by many that indices are popular only as long as interest rates look set to remain low (backed up by the fall in the FTSE after Mark Carney signalled a possible rise in June), has not played out.
The simplest view to take is that this is an unsustainably bullish market, set for a major correction to bring a measure of normality back to markets, see gold rise swiftly again, and kick the forex markets back into action. But there are more complicated factors at play. Many commentators are suggesting emerging markets as the safe haven in case of a US retracement, and the lack of a definable ‘boom’ vertical like mortgages or tech suggests that this stock market is not a replica of those in previous decades.
So the future for gold is increasingly hard to determine, and like so often in the past relies on what occurs in the other major asset categories. For those who are confident enough in their predictions for market movements coming up, a great deal of money could be made – or lost.
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-- Published: Tuesday, 8 July 2014 | E-Mail | Print | Source: GoldSeek.com