Is 2019 Like 2016 For The Gold Market?

Have you ever wanted to travel in time? You can, at least when reading about the gold market. Many analysts claim that this year is like 2016 for the gold market. We invite you to read today’s article about the similarities and differences between the precious metals market then and today and find out what do they imply for the gold prices.

Finally, scientists have invented the time machine! This is at least what we hear from many people: that we went back in time to 2016. Indeed, there are certain similarities between the precious metals market then and today. What are they – and what do they imply for the gold prices?

Let’s look at the chart below, which shows the price of the yellow metal since December 2015. As one can see, gold has rallied since December 2018, just like three years earlier.

Chart 1: Gold prices (London P.M. Fix, in $) from December 2015 to January 2019.

Gold prices (London P.M. Fix, in $) from December 2015 to January 2019

However, the bullion also rallied at the beginning of 2017 and 2018, so why this year would be similar particularly to 2016? The next two charts should provide the answer.

Chart 2: S&P 500 Index from December 2015 to January 2019.

S&P 500 Index from December 2015 to January 2019

Chart 3: Effective Federal Funds Rate from December 2015 to January 2019.

Effective Federal Funds Rate from December 2015 to January 2019

As one can see, at the turn of 2015 and 2016, the global stock markets tumbled. The S&P 500 Index fell about 11 percent from December 2015 to February 2016, amid the poor Chinese economic data and following China’s stock collapse. As a consequence, the Fed paused its tightening cycle after the first hike in December 2015, raising interest rates not earlier than in December 2016. So, it lifted the federal funds rate only once in the whole year, although it forecasted four hikes. Under these conditions, gold soared about 20 percent between December 2015 and March 2016.

The similarities to 2015/2016 should now be obvious. The S&P 500 Index plunged about 16 percent in December 2018 (however, it partially rebounded since then). The Fed hiked interest rates that month, but it sent a clear dovish message, suggesting that it could be patient with further hawkish moves. So far, the price of the yellow metal jumped about 5 percent since December 2018.

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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