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Why Gold Prices Are Set to Stay on the Upswing

Updated on September 25, 2015


Near the end of last week, gold prices witnessed a phenomenal rise after the meeting of the September Federal Open Market Committee. When the meeting concluded, it was interesting to note that the Central Bank left the U.S. interest rates without change. Although there was a corrective pullback on Monday for the yellow metal, a research director states that the stage may be set for a further rise in gold prices following the Fed decision. The last quote for December gold futures were seen to be down 0.5% with a value of $1,132.10 per ounce.

Market Observations

An expert from ETF Securities stated in a recent interview that the bearish factors associated with gold seemed to have moved away or gone on to extremes. Some of these factors include the all time record rally at the stock market, the extremely optimistic expectations for Fed tightening, the resilient U.S. Dollar, and the significant drop in the prices of crude oil. It can be assumed that the Fed holds the suppression of inflation and expectations of inflation as the primary reason for raising the rates. That being said, this course of action has its share of risks, the most obvious of which is deflation. The causative factors for deflation include shortage of commodities, stock prices going down, and the unflinching U.S. Dollar.

As per experts of the Precious Metals Market, it would be a good idea for gold investors to observe the U.S. Stock markets closely on its subsequent moves due to the fact that the precious yellow metal price is almost certain to go up in the immediate future from a statistical viewpoint.

Golden Sanctuary

The surge in gold prices have also been attributed to a large number of investors seeking to protect themselves from the tragic decline in U.S. stocks by making heavy investments in the purchase of the precious metal. The stream of gold investors started to trickle in when the Commerce Department data reflected U.S. durable goods orders falling by a seasonally modified 2% in August from the previous month. The data is suggestive of the theory that the strong dollar and poor economic performance in the overseas market could be contributing to the decline in the demand for goods from America.

The gold value went up stupendously following the stock market fall at the open, driving a significant number of investors towards the sanctuary provided by gold. The S&P 500 stocks index was down by 1.1% recently climbing down to 1917.56. It has been commonly observed in the past that gold tends to benefit from the losses incurred in risky assets such as stocks. This is mainly because of the practice of investors buying the precious metal based on the assumption that gold will maintain its value in a phase of economic instability.

Increased Exports From Switzerland

Last week Commerzbank stated that according to information from customs authorities, Switzerland saw a rise in gold exports with around 173.9 tons of the precious metal being shipped out in August. This is around an 8% increase from the previous month. An interesting fact to note is that almost 70% of this was exported to Asia. India has been constant in its monthly imports; however, there was a dramatic 50% increase in exports to China. Hong Kong took in more than twice its regular share compared to July, which was suggestive of the fact that China had been importing a substantially higher volume of gold from Hong Kong in the previous month. The supporting figures are expected to be published by the Hong Kong government's Census and Statistics Department soon. The All India Gems & Jewellery Trade Federation has made a forecast of higher consumption of gold in the final quarter of the year and hence there is expected to be a rise in gold imports to India in the next couple of months.

Other Developments in Precious Metals Market

While December gold rose by 0.5% to a startling $1,137 per ounce, December silver gave way by 2 cents, consequently trading at $14.77 per ounce. Platinum prices which had took a pounding as a consequence of the Volkswagen debacle were seen to show signs of recovery, the price was still moving around the lowest prices in six years. Volkswagen's trouble with diesel engine cars had hurt the value of platinum, which is used in catalytic converters.

Investing in Gold

As an investor in a troubled market, you can protect your financial interests and prevent your purchasing power from deteriorating by the addition of gold or other precious metals like silver to your investment portfolio. By purchasing gold you lend yourself security and open yourself to opportunities that are practically non-existent through other forms of investment such as the stock market.

The problem in this situation is that U.S. investors are not comfortable with putting their money into the Precious Metals Market. One of the factors being its exorbitant value, another being that it needs to be physically stored in a secure location. Apart from all that, the fact that it is an available resource in sundry forms for a wide range of sellers that includes bullion dealers, stockbrokers, mutual fund managers, commodity brokers, and coin dealers can lead to disinformation, lack of trust, and mayhem in general.

What to Ask Yourself

If you are on the fence about investing in gold, here are a few questions that you need to seek answers to.

  • · What percentage of my portfolio should be dedicated to investment in precious metals?
  • · Is there a way to locate a dependable dealer?
  • · Is gold ETF a safe investment?
  • · Is it necessary to take delivery of the gold physically?
  • · How do you sell the gold back?
  • · Is investing in rare gold coins a good idea?
  • · Can the government seize my gold in any circumstance?
  • · Is it possible for me to place my gold in an IRA?
  • · Can you buy gold on eBay? If so, is it safe?

These are just some of the questions you need to seek answers to make your decision about investing in gold. As you find the answers to these questions, you will develop more doubts, which will lead you to a more detailed study about investing in gold and other precious metals. You will also have a better understanding of how the surge in gold prices affects the economy in general. In the current scenario, gold prices are expected to continue on its upward trend until further market developments occur.

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