By: Mike Hammer
In case you were hiding under a rock, or living an actual life, US equity markets had a bit of a bad day last Friday. The Dow dropped 665 points, or 2.5%, for the biggest drop since Brexit day in 2016. The S&P 500 and NASDAQ indexes were similarly affected. And so far today’s open looks to be continuing the downward direction. Thankfully, gold prices are doing better right now than the market as a whole.
Gold dropped just 1.3% as measured by GLD, our unleveraged trading ETF. That wasn’t too surprising as the US Dollar had an up day, though it ended up closing where it opened, giving up intra-day gains but still closing higher than on the previous day. Of course we like it when the market goes down and gold prices go up, but sometimes the urge to sell is just too strong.
Big market drops make everyone nervous. Will it continue? Am I about to lose everything? In most cases the answer is No. Hopefully you haven’t gone 100% into any one thing, and after initial panic subsides cooler heads tend to step in and start buying at now-lower prices. To do this you need available cash, of course, which is why some of us were not fully invested and didn’t buy in at the recent peak.
What we’ll want to see today is “slowing downward momentum”, which means its OK if today is another down day, we just don’t want to see another -2.5%. Maybe -0.5% or closer to flat on the day would be fine, thank you very much. We’d also like to see “big selling” confined to just a few sectors, instead of seeing red across the board.
Gold prices are slightly up this morning, having bounced off its mid-January support level. If the dollar heads down today we can expect to see investors start buying gold, though don’t expect a big rush in right away. After taking a loss most people are hesitant to hit the Buy button for anything. That’s typical human nature, which is often the biggest factor in the market. Even when many gold stocks are now terrific values.
Signed, The Gold Enthusiast
Disclosure: The author has no positions in any mentioned security. The author is long NUGT and JNUG, and may day-trade these positions in the next 48 hours.