What Does the Worst December Start in the stock Market Mean for Gold ?

 

 

The week of December 10-14 2018 marks the worst December start in 38 years for the US stock market. On top of the terrible first two weeks this month, the Federal Reserve will conclude a policy meeting on Wednesday. The result of that meeting should see a 1/4% interest rate hike. This policy could likely deal another upper cut punch to already reeling market.

The Dow Jones Industrial Average  dropped nearly 500 points, leaving it more than 10% below its early October all-time closing high, meeting a widely used definition of a market correction. It joined the S&P 500  and the Nasdaq Composite  which were already in correction mode. The S&P and Dow are negative for 2018. Today as we are posting this the Dow has opened down over 200 points, S&P and NASDAQ both off more than 40.

President Donald Trump has made clear his opposition to a December interest-rate hike, telling Reuters in an interview that it would be a mistake.” I think [a December hike] would be foolish but what can I say?” Trump said. A comment like this seems to be a bad sign for the markets.

All of this sounds bad – but it probably isn’t bad enough to convince the Fed to pause when it comes to interest-rate rises, said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

“Last we checked, the Fed is in the business of addressing economic fundamentals, not the musings of a market that seems completely unwilling to acknowledge the incredibly solid U.S. economic backdrop,” Porcelli said.

Gold prices climbed Monday as a leading dollar index edged lower. Stock weakness can support gold, but gold’s safe haven popularity has been on the minds of many investors as of late. If history is an indicator we should see A flight-to-safety. A flight-to-quality refers to a sudden shift in investment behaviors in a period of financial turmoil whereby investors seek to sell assets perceived as risky and instead purchase safe assets. (wiki definition) When tis occurs gold has historically been a go to spot. In addition gold and silver have generally seen upticks in spot price. The last correction in the paper markets of this proportion created record prices on precious metals. We certainly believe those record prices can be reached and surpassed.