Gold Price Outlook: Gold Prices Continue Their Descent
Gold Price Outlook
Continuing on its steady price decline, gold has fallen 8% year to date. The gold price outlook was hit hard from as it followed its traditional trajectory that carries it up with market crashes and down with more market liquidity. This huge market swing following bursting housing bubble lead to long term declines. While consumer demand should theoretically offset these declines, the housing bubble was too big for consumerism alone to fix. Furthermore, gold tends to carry a certain amount of sensitivity to global political issues, but the prices have remained rather indifferent throughout the various crises of late.
Although the United States abandoned the gold standard decades ago, people historically tend to invest in gold when the dollar weakens. This explains why analysts believe that when the housing bubble burst, the price of gold increased. A seemingly psychological reason, the theory finds merit in econometric formulas used by analysts. Now that we have more liquidity in the market, people have divested more of the gold in their portfolios. Although demand for gold use by consumers should increase with liquidity injections from central banks, the commodity’s demand as of late has not increased enough to offset its sobering decline. Furthermore, as a major gold consumer, China’s recently volatile market has not helped matters.
Gold typically reacts to political matters, but the most recent issues such as the Greek debt crisis, a tight presidential election, and Hillary Clinton’s Benghazi scandal, appear to have little effect on the commodity. Similar to gold’s inverse relationship to the dollar, investors rely less on gold to mitigate portfolio risk in times of political uncertainty.
Source: Financial Times: <http://www.ft.com/intl/cms/s/0/4a29ee6e-350e-11e5-b05b-b01debd57852.html#axzz3hqSNMLbU>
As gold continues on its downward trend, analysts await to see how the Federal Reserve’s impending interest rate hike will influence its price. The commodities market as a whole is struggling along with gold. However, the difference lies in the confidence level of market analysts and invetors. For example, analysts anticipated the nuclear deal’s impact oil and gas prices. On the other hand, global political issues have had an unpredictable influence on this particular commodity. With gold’s demand not rising enough to counteract these ill effects, gold has found itself in uncharted territory.
