This is Why Investors are Buying Gold Again

Gold prices moved to new all-time highs on Thursday as investors look for safe harbor investments with uncertainty in the markets and economy.  The move comes before Friday morning’s Personal Spending and Consumption data, the Fed’s favorite measure of inflation.

Shares of the U.S. Gold Fund (GLD) gapped more than 1.5% higher as the ETF proxy for gold prices saw heavy single-day trading volume.  The surge comes as the average daily volume of the gold ETF has been on the rise through all of January.

The rally higher eclipsed October’s all-time highs for gold.  Those highs were posted as investors positioned for expected volatility ahead of the general elections on November 5.

Following the election, gold prices tumbled 7% - a large move for gold – as investors embraced the “certainty” that the elections had provided and shifted their buying interests to the massive rally in stocks that followed.

Two months later, investors are now moving back to the well-known hedge for market volatility as inflation, interest rates and geopolitical risks are moving to the front of investor’s concerns.

On Wednesday, the Fed voted to hold interest rates steady instead of lowering by 0.25%.  Fed chairman Jamie Powell explained that the central banks is looking for more constructive declines in the economy’s inflation.

The Fed also appears to be waiting to gauge the impact of several policies from the White House.  Jerome Powell commented that the Fed would take a wait-and-see approach to the economic effect of the changes.

“The range of possibilities is very, very wide,” Powell said. “We don’t know what is going to be a tariff; we don’t know for how long, how much, what countries, and we don’t know about retaliation or how it will transmit through the economy to consumers.”

That uncertainty along with a mixed earnings season has clearly increased investor’s interest in gold as a strategic hedge.

The technical trends have helped to lay a solid foundation for a continuation in gold’s rally.

Just two weeks ago, the GLD fund’s 50-day moving average shifted into a bullish trend.  This alone forecasts higher prices for gold, suggesting that the trend is investors’ friend looking forward.

Call options on GLD shares are seeing increasingly bullish interest.

Trading activity in the March expiration calls saw more than double the volume than puts from the same month.  Options traders focused their buying on the $260 calls with more than 4,000 contracts trading.

The increase in call option activity indicates more speculation that gold prices will continue their move higher.

Investors should expect the solid bull market trend to continue gold’s move higher with a target price of $300.

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