Not all commodities smell trouble quite like gold. It was a top performer during the 2008 financial crisis, peaking in 2011, and declining 30% since. With unprecedented monetary stimulus, it was understandable gold wouldn't do well.
Today, it stands to reason that the economic environment has changed. The International Monetary Fund has warned that global debt has increased $164 trillion since the financial crisis and has asked that the U.S. to cancel their tax-cuts, which is unlikely to happen.
Gold, tracked by iShares Gold ETF (IAU), has been trading sideways since 2013 after a depressed trajectory. In the next few weeks, it will likely be forced higher or lower, as it’s reaching what market technicians call a forced breakout. Where it goes from here will set the tone for equity markets and inflation for the foreseeable future.
If gold breaks higher then we can expect higher potential inflation, increased equity volatility, and potential weakening of asset classes, maybe bonds and the US dollar.
If gold breaks lower then the Federal Reserve may have stepped in, announcing fewer rate hikes or other stimulus measures. In this scenario, expect a smooth ride for equities as companies will continue to benefit from the current low-rate environment.
At Eureka Wealth Management, I'll keep you informed on how gold performs and what action to take to minimize risk and maximize return. I also provide advice on all of your investments, insurance, and retirement. Call me for a complimentary consultation at (760) 537-0791 or visit eurekawealthmanagement.com.