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HSBC analysts have said there’s a high chance that US stocks could fall–should investors look into buying gold instead?
On Tuesday (October 11) US stocks dropped by at least one percent–its biggest loss in nearly four weeks–igniting speculation that the US stock market is heading for a collapse.
In particular, Alcoa’s (NYSE:AA) stocks were hit hard after the company reported its third quarter 2016 results, which included weaker numbers than anticipated.
Tuesday’s drop in the US stock market sparked the HSBC Holdings technical-analysis team to issue a red alert, led by Murray Gunn who said he is “on alert for a big dip in US equities.”
“With the U.S. stock market selling off aggressively on October 11, we now issue a RED ALERT,” Gunn wrote in a note to clients. “The possibility of a severe fall in the stock market is now very high.”
Gunn continued, “The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August.”
In a Bloomberg TV interview, Ben Laidler, global equity strategist at HSBC, noted that investors should be looking at high earnings expectations, economic-policy uncertainty and the upcoming US election as risk factors.
“We think markets are pretty vulnerable,” he said in the interview.
Although US stocks were on the rise Wednesday (October 12), now may be the time–more than ever–to buy gold.
Why gold now?
Currently the gold price is seeing its lowest levels since Brexit–trading at $1,253.30 per ounce as of 3:20 p.m. EST on October 12–with last week’s Chinese holiday and investors awaiting the Federal Reserve’s meeting as contributing factors.
That being said, MarketWatch reported on Wednesday that the results showed support for a rate increase “relatively soon.”
Still, just because the gold price is down doesn’t mean it isn’t a good time to invest in the yellow metal, according to some experts.
CNBC reported that the gold price dropping is, in fact, a price correction, making it an opportune time to invest.
The publication noted that Joni Teves, a UBS strategist, said in a research note that the price correction and “sizeable decline” improves the risk-reward for gold.
“Given cross-currents of factors and risks, we think there is room for investors to be patient in terms of timing the rebuilding of gold positions from here,” Teves said.
Will gold price rise?
While the gold price is hovering between $1,250 and $1,260 per ounce, analysts say that won’t last for long.
In FocusEconomics‘ Consensus Forecast Commodities October 2016 outlook, the majority of its panel sees the price picking back up and averaging $1,334 per ounce in the fourth quarter of 2016.
Demand from India is also expected to increase after a successful moonsoon season, the start of the wedding season and Diwali.
However, not everyone is bullish on the gold price picking up steam: according to BullionVault, ABN Amro’s precious metals and FX analyst Georgette Boele said that this year’s uptrend for gold is over.
The publication noted that Boele has cut her gold price prediction down to 1,200 per ounce by the end of 2017, and averaging $1,150 per ounce in 2017.
Surely, investors will be keeping a watchful eye not only on the US stock markets but the gold price when making a decision.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
