What to expect from gold in the next 6 months
Investors should keep in mind that bull market never moves straight up. If it does, it’s called a bubble, and bubbles eventually tend to burst. Instead, gold markets have been moving exactly as predicted, with big sudden movements up and down on the way to much higher prices in the future.
This has happened many times in the past and the summer potholes in the gold price have happened nearly every year. 2009 was an exception because investors sought a save asset to invest their money in the falling markets, which pushed the price of gold up against the expectations. Even this summer the gold has been doing surprisingly well, it hit the record high at the end of June, against the normal market pattern.
So what is likely to happen in the next 6 months?
The price of gold has been coming down from the record high in the last few weeks and the most common explanation for this is the re-evaluation of U.S economy prospects by some gold traders and investors. The other reason is the abatement in perceived European sovereign risk.
Although, this is just the other side of the coin since the economic news in recent weeks has strengthened the rising expectations of U.S economy downturn, also known as “double dip”, along with it the fears of U.S consumer price deflation. The markets are going through a rough path and obviously investors have mixed views of this since some gold selling have been necessary to cover other financial obligations. After all, it’s the investment demand, which is driving the gold price.
Meanwhile in Europe the relative successful refunding of Greek government dept has relieved some of the fears in the markets and strengthened the Euro. Although this is still just a very minor step towards the solutions of the sovereign debt crisis and the Euro will need many more pushes until it will regain its value against the Dollar.
The recent price falls in gold price and any further short-term declines in the coming days or weeks should make the gold even more attractive for the long-term investors.
Inflation has been relatively well under control and the markets are more afraid of the deflation at the moment. This is in the interest of the U.S government since FED is trying to save the economy by pumping more money into it. In the future this will most likely lead into inflation. When the supply of U.S dollars continues to grow more rapidly than the demand for them, each dollar becomes worth less and in the end even worthless, which will push up the general price level.
Not just the demand for Dollars is growing less rapidly than the printing pace in U.S but also amongst the chief financiers of America, particularly in the People’s Bank of China, which will force FED into an even more expansionary and inflationary mode.
Some investors are trying to deny the inflation scenario by saying that there is so much slack in the economy because of the unemployment and idle capacity that there’s plenty of room for rising economic activity and money supply growth without inflation. This explanation does not stack up against thousands of years of recorded economic history. Most of the times high inflation doesn’t occur when economy is growing strongly but when it is sluggish and sinking…and when people are losing their trust in the monetary system.
Rosland Capital’s gold analyst Jeff Nichols comments: “Today, we are witnessing a loss of confidence in the dollar both at home and even more so abroad, that is capable of driving inflation higher even in the absence of high rates of capacity utilization and low rates of unemployment. This loss of confidence has already contributed to the rise in gold prices over the past few years … and will continue to drive gold still much higher in the years to come.”
We can only hope that the loss of confidence doesn’t turn into a rout since the effects on the gold price would be gigantic. Even a controlled inflation tends to push the gold price up not even mentioning hyperinflation.
Tags: Economy, Finance, Gold, inflation, Investing, investing in gold, investments, markets