So far this year the price of gold and gold ETFs have drifted in a downward fashion but is that likely to continue or is it on the verge of presenting us a with a great buying opportunity? Unfortunately just like many economic questions the answer to this question depends upon whom you talk to.
The value of gold has historically been very volatile. To a large extent its price movement works inversely with the stock market. When there was trouble in the world; a war, a natural disaster or a stock market meltdown, it was said that the smart money moved to gold. Consequently it had been successfully used as hedge against a drop in the stock prices of portfolios for many years. This did change several years ago when some investors in very wealthy oil producing nations began to flock to the US dollar instead of gold in stressful times but in recent years it seems as though there may have been shift back at least partially to gold.
When the collapse of the real estate market began in the US around 2007 and 2008 and was made public in August of 2008 the stock market quickly followed. It isn’t too surprising that for a few months after that there was a tremendous amount of volatility in all markets until there was a beautiful bullish divergent pattern that emerged in the spot price of gold and many gold based index funds and ETFs in October and November of 2008. After that time there was a steady and very strong rise in the price of gold and many investments having to do with gold that didn’t reach its peak until almost two years later. Since the peak in September of 2011 the price of gold has been basically range bound fluctuating up and down but not really going anywhere while the S&P 500 has remained range bound with an upward bias. The price of gold today is basically in the middle of its recent range though it is slightly in the lower half of the range.
Most experts believe that this will continue with a likely downward bias for the rest of the first half of this year. The predictions for the second half of the year are where there seems to be a lot of differences of opinion. Some gold experts believe that the price of gold will continue to drop while others believe that it will rise sharply. The reason that some are looking for a rise in the metals value is due to the looming potential currency wars by industrialized nations from around the world. Many countries are interested in devaluing their currencies to increase exports and to lessen trade gaps.
If an actual currency war does break out and we see the largest nations make attempts to devalue their currencies this could create havoc in the world markets, just about all of the world markets. We have seen several hundred pip moves in the Forex market within minutes of an announcement of intervention by the central government of a highly traded currency but what happens if all of these countries begin to announce their intention to intervene to weaken their currencies? We could see ups and downs in the markets all over the world like we have never seen before with a likely steady and rise in the price of gold throughout this time. Stay tuned because it could be a fun year and don’t forget about what gold could potentially do for your portfolio in the relatively near future.