Gold has been an incredibly interesting commodity to watch throughout the year 2016, and for good reason. Early in the year, the Chinese stock market crashed, leading to a wave of downward movement throughout the global market. This sent gold skyrocketing. Since then, there have been several factors that have caused the price of gold to climb. However, yesterday, we started to see declines on the precious metal as the dollar gained value. Nonetheless, I don't think that we are anywhere near the end of the bullish run. Today, we'll talk about why we saw declines yesterday and why I believe we're going to see strong upward movement in the value of gold moving forward. So, let's get right to it...
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Why Gold Fell In Value Yesterday
As mentioned above, yesterday was a rough day for gold investors. Nonetheless, I really wasn't concerned about the declines, and you shouldn't be either. The reality is that gold, like any other financial asset, tends to move in value through a series of overreactions. Investors will get excited, pushing the value of the precious metal higher than it should be, then we see a correction, bringing the value down to a more reasonable rate before gains continue.
Late last week, the US jobs report was released. This led to the heavy upward movement we saw toward the end of the week. Unfortunately, in the month of April, the United States economy only added about 160,000 jobs. This was well below economist expectations as well as the crucial line that is drawn at the figure of 200,000 jobs. You see, anything under this mark shows danger for the US economy. As a result, the value of the USD fell, making gold less expensive in nations outside of the United States and increasing the demand for the commodity. On top of that, safe haven investors started purchasing more gold as a way to keep their money safe if something does go wrong with the US economy.
Following the incredible upward movement that we saw in the value of gold last week, it only made sense that we would see declines early on this week. After all, as mentioned above, the value of gold tends to move through a series of overreactions. So, the declines in the price of gold yesterday brought it down to a more reasonable rate before growth could continue.
What We Can Expect To See From The Price Of Gold Moving Forward
Moving forward, I have an overwhelmingly bullish opinion with regard to what we can expect to see from the price of gold. There are two big reasons for my opinion on the commodity:
- Safe Haven Demand – Gold is considered to be a safe haven investment. As a result, when market and economic conditions around the world prove to be concerning, investors look toward the precious metal as a way to bring their money into a safe area. Currently, global economic and market conditions are concerning to say the least. So, we have seen incredible gains in the demand for gold throughout the year, and I believe that demand will continue to climb.
- Supplies Are Shrinking – On the supply side of the equation, it seems as though we're seeing even more support for price growth. Early in the year, it was announced that gold had reached peak supply. In fact, in the year 2016, experts are expecting for production to fall by 3% or more. As supplies fall, commodity prices climb.
At the end of the day, all signs seem to be pointing toward growth in the value of gold. So, I expect to see nothing less!
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What Do You Think?
Where do you think the price of gold is headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Pixabay]