Precious Metals: Economic Trends and Gold
Economic Trends and Gold
A weaker economic outlook drives up the price of gold as investors hedge against falling values in the US Dollar and rising inflationary pressures. A drop-in gold price brings back buyers that left the market earlier in pursuit of profits that would accrue as prices would rise in the long run. The rising of interest rates also pushes prices lower as a gold investment does not pay interest. Sometimes when prices fall below a certain level, investment in gold increases whether it is in the form of purchasing bullion or investing in gold ETFs because investors expect prices to rise eventually bringing them safe and longtime returns. However, rebounds can also occur in the short run and those who make investments in gold need to be patient to let the short-term rebound pass.
Political uncertainty also adds to investment in gold and regardless of which party wins, the investment is likely to pay good returns in the long run. Investors invest in a more stable long time prospect rather than going for short run risky investments in periods of political uncertainty. Patience is also required on part of gold investors in ETFs when prices take a short-term dip. At that time, long-term investors would stay away from suddenly ‘spoofing’ and lose long term gains. Interest rate rises, however, can put pressure on gold prices and investors predicting such a rise would tend to stay away from investing in gold during such periods of high-interest rates or in the face of expectations as such.
However, the Fed cannot raise interest rates continuously as other economies like those of EU and China have a direct bearing on the Fed’s decisions. Any uncertainty in their economic outlook can restrict the Fed’s ability to raise interest rates. Therefore, investors must watch out not just for the economic outlook and trends of US economy but of EU and China as well. Thus, if the world economy remains uncertain and volatile, Fed would not likely raise interest rates on a continuous basis over a year thus relieving pressures on prices of gold.
Rise in inflation faster than Fed’s tightening it would raise gold prices as well. Thus, interestingly, if Fed raises interest rates but due to some reason if the inflation continues to rise, the gold process would rise even in the occurrence of higher interest rates. Investments in ETFs can also keep gold prices steady coupled with a rise in demand for physical ownership of gold in the form of bullion. The Shanghai Gold Exchange and the Shanghai Futures Exchange also exert a lot of influence on gold trading. They also have 4 ETFs as well which are gradually attaining acceptance and popularity.
India. being a warm country has more weddings planned in winters and thus the seasonal gold demand can push prices high in the winter months. At lower prices of gold, Chinese investors would be highly likely to invest in gold and push it price up. If the Property market in China faces a slowdown, the money would be likely directed towards gold. Thus, the US economy, political outlook, the world economies mainly of the EU and China and their outlook would greatly dictate the future of investments in gold markets.