On Tuesday, the price of gold reached yet another record-setting level after it crossed the $4,000 mark, continuing its meteoric rise in the wake of multiple tailwinds that favor the precious metal. However, analysts are cautioning that a sharp price correction is looming, and they cite several factors to back this assertion.
Each time prices have risen sharply, many investors have opted to cash in their gains. This profit-taking usually exerts selling pressure on the yellow metal, and prices head downwards until bulls regain control of the market. It is therefore highly likely that a price correction could soon occur, and investors would be well-advised to factor this in as they plan their next steps.
The dollar index has also risen noticeably, and the USD is currently trading at its highest level in two months. Whenever the USD goes up, gold loses some of its appeal among investors who hold other currencies since bullion becomes more expensive for them to acquire. Investors therefore need to keep an eye on the USD index to watch for further gains as such an occurrence would reduce gold buyers and give sellers an upper hand, exerting downward pressure on the price of gold.
Geopolitical tensions have played a notable role in driving up the price of safe-haven gold. The progress that is being made in talks between Hamas and Israel reduces some of those tensions regarding the conflict in the Middle East. As concerns about conflict escalation decrease, many investors are likely to become risk-on and channel their funds to yield-bearing assets like stocks. As more progress is registered in implementing a peace deal between the warring parties in the Middle East, a price correction will become an increasing possibility in the gold market.
Additionally, when an end to the current U.S. federal government shutdown is negotiated, there is likely to be a correction in the price of gold. It is a matter of when, rather than if. Investors therefore need to keep an eye on Capitol Hill and assess how any deal agreed upon could impact their gold holdings in the short term.
The Fed is also due to hold a meeting towards the end of this month to decide whether a further cut to the interest rate is warranted or the current rate should be maintained for longer. In case the FOMC decides to hold off from another rate cut, gold could lose some of its momentum and experience a correction as investors switch to other asset classes that yield gains.
As you can see, many market factors point to an imminent correction in the price of gold, and things can change fast. However, the long term outlook of the metal is still strongly bullish due to factors like the unending bullion purchases by central banks, trade tensions and concerns about the escalating debt levels of the U.S. government.
Gold exploration companies like Torr Metals Inc. (CVE: TMET) may therefore not be overly concerned about any short term price corrections as the prospects of the yellow metal remain positive given the rate at which major banks have been constantly making upward revisions to their price projections for gold in the coming year.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (CVE: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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