The price of gold has backed off in recent weeks and reports of an improving American economy have some people speculating that gold is on a downward trend. No one can predict the future accurately so a sound strategy is to take a look at the facts.
First of all, this is an election year in the U.S. Typically the market does better and the economic picture is brighter during an election year. Could be a coincidence, but the incumbent administration has a huge incentive to claim positive results from their actions and policies. Regardless of the reason, history proves that the market does better during an election year. Positive economic indicators are covered heavily in the media as well.
Gold is a safe haven investment so when the economy is better, gold becomes less of a priority among investors. There has even been speculation that the U.S. dollar is becoming the currency of choice again with a stronger dollar. Time will tell, the markets can be fickle and change in a heartbeat.
Gold is an international investment so the U.S. economy is one factor, but India and China are also big players in the market for gold. The demand for gold in India and China has not backed off despite efforts by the governments of both countries to “cool off” the gold demand. China growth is slowing, according to recent economic reports. Recent reports by Reuters concerning weakness in the Chinese economy will likely be met with government policy to stimulate and loosen the reins on loans to keep the Chinese economy moving forward. India recently raised the tariff on gold purchases to “cool off” the intense demand for gold.
The recent reduction in the price of gold also pointed to the elections in Greece, the possibility that Greece might withdraw from the European Union and the weakness in the Euro. Regardless of the political situation in Greece, the rest of the world moves along, Greece simply presents a wall of worry that the markets can climb.
So do all of these things mean that gold prices are in a downward cycle? No one can predict the future but the fundamental reasons for owning gold have not changed. This is particularly true when you consider gold as a diversification strategy and safe haven investment. Likely this is a buying opportunity and when the elections are over, Chinese policy tweaks are in place and the Chinese economy is stronger and India gets used to the higher tariff on gold purchases, the price of gold will again move upward.
As with any investment, perform your own due diligence, consider your own investment needs and when you decide to invest in gold be sure to deal with a reputable gold dealer for your gold purchases.