Soaring gold prices have now rallied above $1300 while the value of the dollar remains weak – Why do investors see gold as the most lucrative option?
These last seven weeks has witnessed a massive comeback for increasing gold prices – this week alone the value has risen by 3.5%. The rise has been the best performance for gold yet since the last growing trend, back in February 2016.
However, previous to the Federal Reserve Meeting in April, gold prices were falling – due to investors being nervous about its outcome on issues like rising interest rates and low inflation.
Since the Federal Meeting concluded that there would be no interest rate hikes for the time being, due to further inflation stagnation; an increase in popularity has surged back to this investment – especially with the stock market also offering nothing but uncertainty at these times.
— The Capitalist (@Capitalist_Site) May 4, 2016
Why are investors currently buying gold?
Many factors come into play, especially with the current state of the market economy, these include:
- A weak dollar, which means higher value in gold.
- Investing in gold can be more desirable due to the no rise in the Intrest rates
- The stock market has become too risky for investments.
- Higher gold purchases mean more investors will follow (a bear market).
- Low inflation; the price of commodities like oil etc. have a lack of opportunity for high returns.
So the circumstances are set right for seeking gold as a prosperous investment for the time being.
Top investor mistakes when buying gold:
Gold can devalue just as fast as it did when going up – despite many still having the belief that it keeps a constant store of value, which is not the case, as like with everything else demand and supply can profoundly influence the importance of Gold.
In times of a gold rush, more quantities would enter the market, meaning its value would deflate (demand decreases).
Investors must ensure to keep an eye on normal market conditions, in case a significant fall in value should occur, especially from the following factors:
- An increase in interest rates.
- The price reaches climax, and investors stop buying/start selling (resulting in a crash).
- Quantitive Easing and value of bank notes.
- Better investments in the stock market may emerge, offering a higher yield in returns.
The current rise in gold value – long term or a temporary spike?
Although in recent years, gold has dipped and come back down again, many speculators are expecting a dramatic rise in gold very soon.
The NIA (National Inflation Association) have drawn today’s market in stark parallels with the 1970s. The seventies was a time when US inflation spiraled out of control, which saw the financial/gold base ratio build up to $19,700+ per oz (while having a median base rate of $1.063, which is the set minimum).
As $1,300 is still near the low base rate, this means there’s still a little room for a significant decline, and much more potential space for value to increase tenfold.
Will America experience a high inflation again?
Many economists are speculating that the FED are playing with fire, especially with the vast increasing size of the monetary base. Some argue that this could lead to uncontrollable rising prices soon while others think the complete opposite is the real threat – deflation.
Deflation means prices are going down – if the economy is outpacing money availability, then this can cause a recession (or depression in worst case scenario).
However, optimists are very confident that the USA will remain in recovery while the FED are eager to bring inflation up to 2% – as all western nations are yet to experience growth with inflation.
The performance of other metals:
This metal is currently falling – $17,682 per/oz (a drop of 0.8%).
From its big climb on the last April quarter, it has now dropped back to $605.80, as investors seem to be selling it off quickly.
April, especially the final weeks, saw massive gains of up to $1,084.9
Looking at all the factors discussed, it is a high potential investment at the moment, especially if prices do rise to values as seen in the 70s/80s.
Gold is worth a look in, even more so at the moment, while rising prices are still not far from its median base ratio.
However, there are a few potential threats to look out for:
- The tensions between USA and Russia.
- Economic difficulties in China.
- A sudden increase in oil prices.
- Further difficulties in the Middle East, Syria.
There are plenty of dangerous circumstances that can bring gold back down, but as with everything else in life, there is always that risk in everything you do – even more so when it’s money that you are investing.
But savvy investors should always be deepening their research, into numerous sources, to know whether they should invest or not.