Will stock markets head for further declines? Gold granted back its haven quality

Will stock markets head for further declines? Gold granted back its haven quality

Will stock markets head for further declines?

Sharp dropdowns experienced by major stock indices raise some concerns. US stocks has fallen by more than 10%, Chinese indexes lost more than 20%, German and Italian almost 15% and of course we should not forget emerging markets. Disappointing corporate earnings and elevated bond yields, makes bonds more attractive to investors.

The US-China conflict is also an important factor.

All these factors point to an economic slowdown. The pace in which stock markets rose in the past three years has become very hard to be maintained.

In addition to these factors, sustained increase in inflation will negatively weigh on stocks prices. Wage growth and rising raw material prices will decrease corporate profits and consequently lead to a decline in stocks prices.

Technically attention should turn towards the 23000 level for Dow Jones and 2500 for the S&P. Breaking these levels will mark the beginning of a new phase in the economic cycle.

Gold granted back its haven quality

Gold reversed back after posting a fresh three-month high. That pullback can be attributed to profit taking on prior long positions.

The future trend is largely linked to investors’ risk appetite. We saw the gold granting back its haven quality lately, mainly after the sizeable equity sell-offs in the global markets.

Another sizeable equity sell-off, will help gold regaining its shine, and open the door for further gains towards the 1255$ level in the near-term.

In the long term, elevated interest rates and bond yields will negatively weight on gold prices and may limit the expected gains. If, however, those coincides with a rise in stock indices, the previous metal will return to its downwards path.