That fear is driving demand for gold is even more manifest when comparing the strength and stability of the U.S. dollar index (DXY) with the metal’s price. Even as the dollar index has drifted higher for most of the past year, gold has been able to largely ignore these currency-related headwinds thanks to the intense safe-haven demand for the precious metal.
Fear is one of the big drivers behind the recent surge in the gold mining stocks. The PHLX Gold/Silver Index (XAU) having hit a new yearly high on July 10, it’s clear that investors are buying gold stocks to leverage the fear trade in physical gold. The XAU, which is the benchmark for U.S.-listed precious metal mining stocks, has gained nearly 23% since the end of May. That’s the best 6-week performance for the mining shares in years.
The fears over the global economic and geopolitical outlook still very much alive, investors can expect gold’s “fear trade” to remain intact this summer. Even if investors’ worst fears fail to come to pass, memories of last year’s scary stock market decline are still fresh and will keep the flight-to-safety impulse toward for months to come. Gold mining stocks should also continue to see increased demand based on these lingering fears.
Gold LONG (Buy)
Enter at: 1422.16