It’s finally happening, mainstream economic players and investors in the world like Goldman Sachs have gone bullish on gold. They aren’t the only ones. More investors and money managers think that gold might break through and hit that magical $1,500 per ounce mark. As things stand, that mark is based on more than just hope but solid economics.
Gold has had a good start. However the Federal Reserve has had to institute some monetary tightening. That still didn’t stop it from rising up to 3% compared to last year. The fact is that gold has been the best performing asset on the market. As of 23 March it has outperformed the S&P500 Index as well as the Bloomberg commodity index.
Analysts believe that the yellow metal will continue its upward trajectory because of these three reasons:
1. Inflation rates are being understated
Inflation is expressed in terms of consumer price index. Using this inflation index, inflation would be high by 2.1% by December. However the correct methodology is not being used. If the correct metrics are used, then the inflation could be close to 10%. with rising inflation, central banks generally respond by hiking rates and high interest rates are actually not bad for gold. High inflation rates and high interest rates mean that you get less for your dollar. If the purchasing power of paper currency is down, then owning gold is the best thing.
2. Weakening currencies
When the U.S dollar is weak that’s generally good for other commodities like gold. The dollar like a lot of other currencies has been tanking. So far, the dollar index has dropped by 3%.
Americans like to hear of a dollar getting stronger, but it can be bad. President Trump told Wall Street in 2017 that the dollar was “too strong.” A strong dollar makes it harder for the country to trade with others. A weak dollar boosts exports and tourism up but gold prices also go up. When the current stock market bubble bursts, there are serious ramifications for assets like gold. When the US stock market stops going up, (because eventually, the bubble has to burst) high inflation and interest rates could cripple corporate earnings maybe institute a bigger stock market crash. Such a scenario would be good for those invertors who put their money in gold.
3. Rise of the middle-class and high income earners in India and China.
According to the assertions made by the World Gold Council, gold is set to do well in 2018. The Indian and Chinese economies have been growing and with these countries being the biggest consumers of growth, demand for the yellow gold is set to grow as well. It goes without saying that in countries where gold is part of the culture an income rise means people will have more money to buy gold. It’s not just gold bars or gold jewellery that Indians and Chinese are set to buy more of but people will also buy gold-containing technologies like smart devices.
These might be three things to look out for when it comes to buying gold, but there really is no way to know for sure what will happen next week, next month or next year for that matter. Buying gold now to store wealth for an uncertain future would be a wise decision.