For the past few months, investors across the globe had been in a “risk-on mode”, especially is we talk about the United States market. US stocks managed to reach several all-time highs, despite some fears related to trade. Although we saw some setbacks, the market continued to rally exceeding even the most optimistic expectations.
Because of that, commodities trading had been subdued and prices had been under pressure. Soybean is on a downward path, due to the trade dispute between China and the US, and also, gold had a bad performance, which is the main subject of this article.
Riskier assets attractive – but until when?
As money was pouring into riskier assets like stocks, the world’s most famous precious metal – gold – saw its price weakening for five consecutive months. Last time when we saw five consecutive losing months was back in the end 2012, beginning of 2013. At that time, gold was at a much higher level, but it is interesting to note that the sixth month closed on the green territory.
In the past 15 years, these two are the single situations when we have five consecutive losing months for gold, thus we have in an oversold environment.
Technicals and fundamentals combined
So we are in an extremely oversold environment and now we must look at the fundamentals as well. With stocks at record highs and rising political risks, the investors’ sentiment might gradually change in the short to medium term.
A trade war between the United States and China and midterm elections in the US might become some serious reasons for money to begun to shift. A change to “risk-off” mode in the market sentiment will favor safe-haven assets and gold is part of that category.
Commodities trading might become more active and it is possible that gold might be among the few that have the potential to perform better. Currently, we are roughly 50% percent below the all-time high set back in September 2011.
If China and the United States will continue to impose tariffs on each other, analysts suspect the global economy might start to slow down, putting pressure on the big corporations and thus on the stock market.
Due to the current oversold environment, gold could become pretty appealing for investors. The situation needs to be monitor closely, both on a technical and fundamental level.
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