The fear factor has built up between gold and the dollar, in recent weeks, and the weakness of gold prices may result in a further strengthening of the greenback. However, gold prices may still rise, as current weak demand and speculation have drawn investors away from its most well-known exchange rate, the dollar.
Gold is not something that are very liquid, but it is easy to move around. This makes gold a much better holding than other asset classes.
With such a wide range of potential events, investors need to take advantage of the gold price to protect their investments. More people buy gold than sell. Therefore, when prices go down, investors sell.
As the price falls, the value of their holdings will also drop, so caution is a must. It is quite normal for people to jump into the market without a good understanding of what is happening, or what the likely effects are.
Due to the absence of an outlet for news reports, investors are much more likely to notice large scale negative trends in the market. Another problem is that when there is a large trend, news gets back to the investors.
At that point they become panicked and sell off stocks and currencies to cover the price drops. At that point the status quo is restored, and prices start to rise again.
Now we are talking about the speculative investors, not the ordinary investor who just wants to get their money out of a stock and into cash, or another safe asset. So the big problem is that investors who had previously managed to enter the market and get involved have been suffering huge losses, and the panic selling is making them worse off.
The fact that the market is now very liquid makes it easier for sellers to get their selling transactions off the ground. Because the price is constantly falling, the amount of buying transactions has gone up dramatically.
This has resulted in a spike in the bad news about the economy and consequently in the stock market falling like a lead balloon. The price of gold has dropped quite a bit.
This means that while the selling is taking place and the money flows are drying up, the buyers can’t get on board. If they do, the prices will soon fall again, and they’ll be forced to return to their investment for investment sake only.
Once investors become aware of this bad news, they will be forced to act, and that will translate into selling. Once the real sellers realize the same thing is going on, they will then rush to the market to get their hands on the gold before the panic sale makes a bad situation worse.
No matter how you look at it, the strong dollar means that gold prices have become vulnerable as the USD rises against other major currencies. This situation could cause the price to rise for some time, but it is certainly possible that this situation will be resolved as we move into the first half of 2020.