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Macro Central Banks

Stimulus Wave: US Dollar Drop Fuels Gold Price Surge

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By Lachlann Tierney, Wednesday, 25 March 2020

The Dow Jones Industrial Average surged massively overnight, jumping 11.4% or 2,113 points, marking the largest increase since 1933.

The ASX 200 followed markets in the US, surging 5.82% in the first 30 minutes of trading this morning.

Coinciding with the meteoric rising of global market indices was a 4.75% rise in the gold price overnight and sharp drop in the US dollar.

The Bloomberg Dollar Spot Index declined 0.6%, ending a 10-day rally that took the USD to the strongest level on record after the Fed announced unprecedented stimulus.

This could be a sign that markets are beginning to feel the wave of liquidity the federal governments are now providing.

USD vs Gold Price Chart - Dollar Gold Chart

Source: Tradingview

Gold price USD/oz (red) and USD Index (blue) over the last three months

Does this bode well for the gold price?

Often, when the market is looking shaky and volatility is high (which seems like the norm now), investors will turn to buying gold and gold stocks to shelter from the storm.

This time the usual haven hasn’t withstood the storm.

Instead, investors flocked the sanctuary of the US dollar.

In the graph above we can see the USD Index storm upwards as the gold price crashed during the middle of March.

But with governments around the globe now injecting liquidity back into their economies and quantitative easing strategies coming into effect, investors have started to move on from the Greenback.

Maybe don’t let yourself get too carried in the recent stock market surge.

The current economic forecast is still looking bleak and profit outlooks could get worse before they get better.

In a brand-new report titled ‘The Looming Aussie Recession and How to Survive It’, Nick Hubble reveals why a recession in Australia is inevitable and three steps to recession-proof your wealth. Click here to receive your free report.

Closures of mines and refineries, and unprecedented monetary action could push the gold price to new highs.

The past three days has gold jumped more than 11% off the lows we saw last week.

The near-zero interest environment, market uncertainty and ongoing liquidity injections provides a bullish outlook for the precious metal.

When is the right time to buy?

It is worth paying attention to what the Aussie dollar is doing if you’re going to make a play for gold.

Personally, I like the idea of a longer-term position in gold, especially if we are expecting the current COVID-19 crisis to carry on like it is.

The economy is going to take time to heal and I don’t expect volatility to recede anytime soon.

The one thing you should pay attention to is the fact that we have gone straight up in the air like this, and it’s difficult to keep up this type of momentum.

If you can wait on value, you may be rewarded.

Perhaps it’s best to not go gung-ho at this point, because you would be paying up for the trade.

If you’re looking to invest in gold but are unsure how the best way to go about it is, check out our free report that teaches you the easiest ways to start investing. Download it here.

Regards,

Lachlann Tierney,

For The Daily Reckoning

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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Lachlann Tierney
Lachlann ‘Lachy’ Tierney is passionate about uncovering hidden opportunities in the microcap sector. With four years of experience as a senior equities analyst at one of Australia’s leading microcap firms, he has built a reputation for rigorous research, deep-dive due diligence, and accessible investor communications. Over this time, he has vetted seed, pre-IPO and ASX-listed companies across sectors, conducted onsite visits, and built strong relationships across the microcap space. Lachy is nearing completion of a PhD in economics at RMIT University, where his research focuses on blockchain governance and voting systems. His work is housed within the Blockchain Innovation Hub at RMIT, a leading research centre for crypto-economics and blockchain research. He holds a Master’s degree from the London School of Economics and an Honours BA in Philosophy and Politics from the University of Melbourne. Born in New York and raised in California, Lachy grew up a few blocks from biotech giant Amgen and counts among his peers various characters in the overlapping worlds of venture capital, technology and crypto. When he’s not researching microcaps, he’s most likely sweating it out in a sauna or dunking himself in cold Tasmanian water.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

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