Commodities News: The Bulls & The Bears

Commodities News

In stark contrast to the S&P 500, currently hovering just 2% below its record high, the commodities market looks bleak. Gold recently hit its 5 year low of $1,102.70 per ounce. However, countries continue to purchase gold by the ton despite its 15% year-to-date price drop. The inverse relationship between gold purchases and monetary devaluation may play a role in this. For example, as of this month, China sits the 5th largest stockpile of gold compared to other countries as its Yuan decreases in value.

Gold mining companies naturally feel the effects of the slump in the commodities market. Not only has the price of gold fallen drastically, but mining companies continue to extract more of it, adding about 1.5% per year to the current gold supply of 6 billion ounces. What makes gold a unique commodity is its low consumption rate in comparison with other commodities. The consequent increase in the supply of gold will drive prices down further, which is why some analysts remain bearish on the commodity. They further cite a currently stronger dollar to support their opinion.

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Some analysts, however, have taken a bullish stance on the commodities market, including gold. While they will not claim any of the commodities that have tumbled month after month have hit rock bottom, they do believe it is time to start putting some commodities at the core of your portfolio. They may base this opinion a variety of situations happening such as the U.S.’s impending interest rate hike. They further cite the number of countries buying gold in an effort to counter their decreasing monetary valuations. Some analysts believe the low prices create an optimal time to buy, especially since other countries are working to make their currency stronger.

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