How to maximise your gains in a gold rally
London (Mar 18) The price of gold is likely to move higher again this week if the Federal Reserve raises interest rates as forecast. Gold prices have jumped after each of the previous five rises of the current cycle and is more than 30 per cent up from its recent bear market low of $1,050, touched in December 2015.
Admittedly the price is barely up in 2018 so far. But it has not suffered anything like the volatility of US stock markets and its recent bull market trend is not broken.
If any single factor can be isolated to explain the latest price surge for the yellow metal, it has to be the relative weakness of the US dollar over this period. Will this continue?
Given that the US dollar was previously at a 14-year top, and that these trends tend to span a very long period, then history suggests that dollar weakness is not over yet.
The five Fed interest rate rises have so far failed to stop the fall in the greenback’s value as the market is more worried about a surge in the national debt courtesy of tax cuts and increased military spending.
One possible future scenario is that January's US stock market decline resumes and that the Fed then cuts interest rates to counter an even more serious correction.
That’s what happened in 2008 when rates rose up and up until the stock market crashed and then went down all the way to zero.
The effect of that was a dollar crash and soaring precious metal prices, with gold hitting an all-time high of $1,923 an ounce by October 2011.
Donald Trump favours a weaker dollar, higher inflation, trade tariffs and a rising national debt to fund tax cuts and a higher military budget. These are all gold price positive, and particularly bad for bonds that are the usual alternative safe haven asset to gold.
Any movement from the massive US bond pool into the much smaller gold market would have a huge impact on gold prices.
So, if you are convinced that gold has a bright future ahead, and the 2010 to 2011 gold bull market saw prices double, then how should you be positioning for maximum gain?
NationalNewsBusiness
