It’s safe to say that May was a hell of a bearish month for gold prices, in fact it’s been the worst month of the year so far for the precious metal. Gold prices fell from a high of $1300 on 2nd May to a low of $1200 on 30th May.
This abrupt end to the short term bull run in gold was mainly triggered from the Fed’s comments on the possibility of an increase of interest rates in June. It was previously thought that any further hike in interest rates would be put on the back shelf until the last quarter 2016. However, they now see the possibility of raising rates earlier and think the economy could withstand a small hike.
Miners Trying To Hold On To Gains
Whilst gold slid almost 6% from its high is worth noting that this low area has been a support since the parabolic surge in early February 2016. It is also worth noting that many of the gold mining stocks which make up GDX have not experienced spectacular falls that such a slide in gold prices should create. Companies such as Barrick Gold (ABX) and Newmont Mining Company (NEM) have pulled back but their share prices remain above the April 2016 highs.
Many analysts and commentators are suggesting that this pullback in gold could be a huge opportunity for money on the sidelines to pile back into the precious metal. They say the rise since February is not just a short term bull trend, but the beginning of a multi-year trend in gold, and if that is the case then a strong retrace such as this could actually be a fantastic opportunity.
However, it all comes down to how the Federal Reserve play this out. If they do decide to hike rates earlier than was expected then it’s possible that gold could break beyond this $1200 support and go on to test lower levels. Conversely, if the Fed decide not to hike rates, and the fear was unjustified, then it should cause one huge spike upwards in gold prices.
June is certainly going to be an interesting month for investors of precious metals.