Gold is known to be a safe haven during uncertainty on the stock markets. Based on this notion, we could potentially use the price of gold to predict the future of the equity market. According to expert analysts, there is a golden level that could initiate a stock crash in the near future.
Due to gold’s relatively stable price, the commodity is often used as a way to keep capital safe when the stock market is crumbling. This also means that investors tend to buy gold when they’re uncertain about the future or when they’re predicting a major price fall in stocks. Since this kind of behavior pushes the price of gold up, some experts claim that we can predict what will happen on the stock market by analyzing the price of gold.
In order to explain this further, we’ll take a look at the most recent price developments. Over the past month, gold has increased from just above $1,300 per ounce to pass $1,330 – pushing past $1,338 late last week. However, at the height of the latest stock market sell-off that occurred a couple of weeks ago, the price of gold shot up to over $1,353 when investors tried to cut losses.
Based on these price developments and data from how the price of gold tends to move in correlation with the stock market, experts try and predict the next stock market move using gold. According to analysts at Piper Jaffray, we can expect to see the stock market plummet if gold passes $1,365 within the next few weeks.
“If we get this break above $1,365, I got to tell you, that’s going to be a real negative event for the overall market itself,” Craig Johnson at Piper Jaffray told CNBC on Friday.
Using the Price of Gold to Plan Your Stock Investment
Basing stock investments on the price of gold is a well-known investment technique and something many professionals consider when planning their investments and something you should consider as well.
At the moment, the stock market is acting quite unstable with regular price drops and questionable developments. And as investors are ditching the FAANG tech stocks (Facebook, Amazon, Apple, Netflix, and Google/Alphabet) that have been driving the market for the past few months, worries about future sell-offs are growing.
As always, no one knows what will happen but if you listen to the experts it can be a good idea to keep an eye on the price of gold. Just make sure you analyze the market properly before you invest in anything.