The behavior of gold prices over the last few months has many people quite confused. The perception of gold as a safe haven investment would make you think that with the recent economic upheavals in Europe, inflation in India and economic slowdown in China that the price of gold would be soaring.
So, why have gold prices backed off in the last few months?
To understand the gold price picture it is important to look at each of the major buyers of gold. In the US a strong dollar and improving bond picture has lessened the focus on safe haven investing. The June 1 jobs report has renewed the interest in gold and sparked an immediate uptrend in gold prices. Economic health for the country is driven largely by consumers and consumers rely on jobs for the money to consumer. The jobs report shows a very weak picture. India is another big buyer of gold and the inflation picture in India is leaving gold buyers with fewer Rupees to spend on gold. The value of the Rupee is weak which makes gold very pricey. Also, gold purchases in India are heavily driven by festival and wedding season and those event drivers have passed. China is another big gold market and the economic picture in China shows slower growth, with lower production numbers and higher inflation. That reduces the amount of Yen that Chinese gold purchasers can invest in gold. The Chinese government is working hard to walk the inflation/growth tightrope, which is moderating the growth picture in China. Certainly India and China will continue to be avid markets for gold.
Does this mean that gold is no longer a sound safe haven investment?
Not likely! Greece and Spain are still struggling under a heavy debt load, the US jobs picture is weak and Indians and the Chinese will return to record purchases of gold.
Likely what this means is that the reduction in the spot price of gold is a buying opportunity and we will see gold prices bounce back. When and how much? You would need a crystal ball to predict timeframes and amount but certainly safe haven investing is a good bet over the long term.
As with all investments, perform your own due diligence to get the answers to your questions.
When you are ready to invest in gold, there are many different types of gold investments. Be sure to work with a reputable gold dealer, understand what you are purchasing and make sure you follow the gold spot price. You will certainly have to pay more than the spot price of gold for your purchases but you need to know that you are getting a good deal.