Wall Street investors are experiencing continual ups and downs, and it may be getting tough to determine just how far and long to ride this bull market. This week has seen increased speculation due to an uptick in gold purchases and lower U.S dollar prices. The precious metal continues to extend a yearlong rally, hitting $1,313.10 a troy ounce. It’s up 14% for the year, and 2017 is trending to be the first year it will outpace the S&P 500 since 2011.
Gold and stocks have risen together this year, leaving investors encouraged by a season of high corporate earnings. If Congress gets mired in its inability to work together on a bipartisan basis, issues like the debt ceiling and tax reform could threaten those gains and result in a run of uneven U.S. economic data.
U.S. Dollar Falls
The U.S. dollar has fallen behind as it tumbled to its lowest level, with a modest recovery by the end of the day Tuesday. It’s down 12% against the euro and 6.2% against the Japanese yen for the year. Weaker cash also boosts gold, which is valued in the U.S. currency and becomes more affordable in foreign markets as the dollar declines. The drop has caught many on Wall Street off guard because the dollar was widely expected to appreciate in 2017 after the Federal Reserve raised long-term interest rates. The fall has served as a major driver for bullion, given the historically inverse relationship between cash and precious metals.
U.S. jobs data, due for release later this week, will likely be the key indicator for the gold market, though other geopolitical issues will also impact the value of the commodity. On Tuesday, investors flocked to the safety of gold and government bonds with concerns over North Korea, Hurricane Harvey, and the questions of how Congress will handle the approaching deadline to fund the government.
In the midst of a stock market rally that has run for 19 months without a significant pull back, this is not a “the sky is falling” prediction; it’s just a trend worth watching. Investors are moving forward with caution and keeping an eye out for that sweet spot for protecting profits by allocating more funds to assets they consider safe. Like most things, it is all about timing, and in this case, knowing when to go for the gold.