Gold prices hit a 1-week high mid-December and steady they go. Since the price made a low of $1,046 back in 2015, it has never looked back. As of today, it is trading at $1,248. Having said this, the price is down by -4.05% year-to-date, but the daily chart shows that the trend is still skewed to the upside. The primary reason we saw some losses in 2018 was the hawkish monetary policy adopted by the Federal Reserve Bank.
The Fed has increased the interest rates three times so far this year and another rate hike is firmly on the cards when the Fed meets on Wednesday. Another hike will push the interest rates in the U.S. to their highest level in a decade. These interest rates hikes have pushed the dollar index towards its peak point (97.71) for the year. In other words, the dollar index has had one dominant trend this year- the uptrend.
The greenback and gold have an inverse relation. The reason we have not seen strength in the inverse relationship between the yellow metal and the dollar is mainly because of the feeble world economic growth. The tumult in Paris, the Brexit chaos and the trade war between Washington and Beijing have crippled optimism among investors.
Going into 2019, the yellow metal is likely to shine more as cracks have started to surface in the U.S. economy. The U.S. equity markets are on track to record the worst performance in a decade. Trump can no longer brag about this. The housing market, a leading indicator to gauge the economic health of the country, is showing some serious concerns. Business investment has dried up in the third quarter and effects of tax cuts by Trump administration have almost vanished.
an the U.S. economy end up in recession in 2019?
This is the question that many will be asking. Under the current circumstances, it may not be far stretched to say that if the recession doesn’t see the daylight in 2019, it is likely to see it in 2020. Having said this, it is vital to look back at history and see how they have dealt with a similar situation. Data shows that the Fed has hardly increased the interest rate when the equity markets are soft.
Investors and the Fed will be observing the economy very prudently and this will dictate the volatility for the gold price. Looking at the historical chart of gold, it shows that volatility is ready to pop. The explosion in yellow metal’s volatility is due for some time as it is currently sitting at a historical low level. Investors are already worried about global growth and if these concerns change into a global recession, the above scenario can easily come in to play.
All in all, it is highly likely that we will see an uptrend for gold and factors such as feeble economic growth, escalation in the geopolitics in Europe, the Middle East and stronger threats to Trump’s presidency could drive the price way above the $1600 mark in 2019. However, a controlled Fed policy and a stable economic growth may only push the price towards $1400.