9.3
8.539 reviews
English
EN
The gold price was in an upward trend at the beginning of this year, but in recent months the precious metal seems to be moving mainly sideways. Positive investor sentiment is currently giving a boost to equities, not to mention the flight to Bitcoin and other virtual currencies.
In all this violence, gold is left behind, but that does not mean that the role of the precious metal has been played out. In fact, this could be a good time to buy gold. David Fickling of Bloomberg thinks this could be a good time to get into gold and listed the four most important factors that can give a positive boost to the gold price in the near future.
This week, the Federal Reserve raised interest rates for the third time this year, to a range of 1.25% to 1.5%. In theory, a rise in interest rates is unfavorable for gold, as the precious metal does not provide cash flow. But the experience of recent years has taught us that the gold price actually reacted positively to an interest rate hike by the US central bank.
When the Federal Reserve started raising interest rates, a Troy Ounce Gold about $1,060. Since then, interest rates have been raised by 25 basis points four times, but gold prices rose to $1,250 per troy ounce in the same period.
If we look at the past two years, it is striking that the gold price keeps falling in the run-up to an interest rate hike. But as soon as the interest rate hike is a fact, we see the price skyrocket again. Of course, that is no guarantee for the future, but the pattern now seems to be repeating itself.
Gold price rises after Federal Reserve interest rate hike (Source: Bloomberg)
If we look at the price development of gold over the past five to ten years, we also see that there is a seasonal effect. On average, the precious metal was found to perform best in the months of January, February, July, and August, while March, May, and December are generally the worst months for gold.
This turns out to be no coincidence, because the period when the yellow metal does well coincides with the Diwali festival in India and the Chinese New Year. During these periods, a lot of gold is bought in these two countries, which together account for almost half of the global demand for physical gold. That probably explains why the gold price tends to rise during this period.
Gold tends to do well in January, February, July, and August (Source: Bloomberg)
When the economy is doing well, the interest in Buy gold among savers and investors, it is generally very low. It is therefore not surprising that far fewer investment coins were sold this year than in previous years. But after an eight-year bull market and with stock prices at record highs in the United States, you can ask the question how long this will last.
The Citigroup Surprise Index, which measures investor expectations against actual corporate earnings, recently hit its highest level since 2010. This means that investors currently have very high expectations, which could lead to disappointment if future economic data turns out to be disappointing.
Investor expectations are currently exceptionally high (Source: Bloomberg)
A fourth factor that could give a boost to the future Gold price is a possible correction or crash of Bitcoin. The virtual currency has skyrocketed almost in a straight line to over $18,000 in recent months. If this wild price increase comes to an end and the price tumbles down again, it could have a positive effect on precious metals such as gold and silver. These investments may not be as exciting as Bitcoin and other virtual currencies, but they have proven to be a safe haven in uncertain times throughout history.
Of course, it is possible that the price of Bitcoin will rise much further and that virtual currencies will play a greater role as an alternative to the fiat money of governments and central banks. But expectations are now so high that it remains to be seen whether those high prices of virtual currencies can be sustained. Many investors are getting in now because they expect a further rise in prices, not because they really want to use the Bitcoin as a means of payment. If the price falls in the future, many speculators will sell their position just as quickly.
Price development Bitcoin since 2010 (Source: Coindesk)
Disclaimer: Hollandgold does not provide investment advice and this article should not be read as such. Investing involves risk, and past performance is no guarantee of future results.
Tip: At Hollandgold you can now Buy gold with Bitcoin.
