Gold investors are fretting. The price of gold has held steady at $1200 for around the last six weeks. So, investors are wondering whether they should sell their holdings before gold drops any further.
We are going to look at what exactly is going on and what the future holds so you can make an informed investing decision.
Interest Rate Hikes are Causing Havoc
The problem, as of September 2018, is that the Federal Reserve is hiking interest rates. They have also signalled further interest rate hikes in the future, with the Fed sounding about as hawkish as you can imagine.
The US economy continues to improve. There’s a renewed confidence in the US economy, so gold investors are suffering for it. The latest hike caused gold to dip below $1200. If the current trend continues gold will surely continue to decrease in value.
So, does this mean that you should sell?
The Counter Balance in Politics
Ordinarily, interest rate hikes would make short to medium-term gold investors sell some of their holdings. However, we live in unique times when it comes to trading gold.
The US dollar is nowhere near as strong as it could be because of problems in the political arena. This time next year we may very well have a different president. Add on the upcoming midterm elections in November and we have a storm that holds the value of the dollar down.
Any good investor knows that when the dollar is weak gold prices rise. The worst thing for any gold investor is to see a strong dollar.
It’s not a catastrophe like the one in 2008, but the gains in the US economy are not being fully reflected in the value of the dollar. One could argue that gold investors have got off easy so far.
The Escalating Trade War with China
Another aspect gold investors have to take into account is the escalating trade war with China, where the majority of Chinese imports are now under tariffs.
The issue with a trade war of this scale is that Chinese imports make up a huge part of the fundamental US economy, and China has retaliated with tariffs of its own. Ordinary American businesses are suffering for that.
It’s not a wild prediction to say that the attitude of the hawkish Fed could very well change as the impact of Chinese tariffs ricochet down to the average American.
These are the aspects that keep the dollar low.
Last Word – Fundamental and Technical Observations
Don’t make the mistake of exclusively looking at the hike in interest rates when determining your next move. The fundamental aspects of gold prices are just as important in 2018.We don’t believe that gold investors should be overly worried about the hike in interest rates because there’s a counterbalance in the political arena.
However, you should continue to monitor both aspects when holding gold. Right now, conservative investors may see value in holding gold and weathering the storm, whereas aggressive bulls might want to consider selling some holdings.
What’s your view on the hike in interest rates?