Written by Border Gold     January 08, 2018

The gold market got out of the gate with a nice head of steam to kick off 2018, and the market is showing some significant signs of strength. Gold may, however, be slightly overbought in the near-term, and a pullback is a possibility before the recent trend higher resumes.

Investors have been flocking to gold as the New Year gets under way, and that has been seen not only in the physical market but in other markets as well. The world’s largest gold-backed ETF, known as SPDR GLD, recently had quite the winning streak. In fact, GLD rose 11 consecutive days before the winning streak was finally snapped with declines last Wednesday. This represents the longest win streak for the ETF in its history, and more gains could potentially be on the horizon.

While we believe that the only real way to harness the power of gold is to buy and hold the physical metal, the strong start for GLD could point to more upside ahead for the yellow metal.

As 2018 gets under way, investors seem to be growing increasingly concerned with a number of potential issues that could warrant diversification with gold and a more cautious approach to investing. While this list is by no means complete, some of the major areas of concern for investors in the months ahead may include:

  • The potential for rising inflation
  • The North Korean conflict
  • Domestic politics in the U.S.
  • Exploding U.S. deficits
  • The potential for the end of the bull market in stocks
  • A weaker dollar

These and other issues have been largely shrugged off by investors for quite some time, but how much longer they can simply be “swept under the rug” is a significant question.

Market volatility has been essentially non-existent for a very long time now, and stocks have not seen a major pullback in years. Could 2018 be the year that volatility rears its ugly head once again? Quite possibly, and it seems that many forward-thinking investors are taking steps now to try to insulate their portfolios from a return to more historical levels of volatility.

A large spike in selling and volatility could arise from a variety of possible catalysts. Just look at how the markets behaved when Michael Flynn pled guilty in the Robert Mueller investigation or how they have reacted, at times, to further missile tests by North Korea.

Whatever the primary driver may be, a major sell-off could potentially have a domino effect, and investors could go running for the exit signs in droves. This could be accompanied by a substantial increase in the VIX or other measures of market volatility, and stocks could see a large portion of gains made in recent years wiped out in a hurry. As the old saying goes: “Markets like to take the stairs up and the elevator down.”

Equities seemingly become more and more vulnerable by the day, and it may not take much to set a significant sell-off or market reversal in motion.  Given the rising geopolitical and stock market risks, the gold market, however, may simply be at the beginning stages of a multi-year protracted bull market that could see prices challenge or exceed previous all-time highs.