Gold Is Declining On Positive Market Movement…Are Price Gains Over?

Monday, February 15, 2016

The value of gold has been rising since the beginning of the year. However, we're starting to see declines in the value of the commodity. So, what caused the gains in the beginning of the year? What's causing the declines at the moment? Is this the end for the gold boom? Today, I'll let you know my opinion on these topics.

Why Gold Was Gaining Throughout The Beginning Of The Year

The gold price has had a strong start to the year. In fact, we've seen incredible spikes in the value of the precious metal over the past month and a half. So, what caused the increases? Well, there are two primary factors at play here...

  • Supply – As with any other commodity, gold is largely at the mercy of supply and demand. On January 17th, we heard big news with regard to the supply of the precious metal. Gold has reached peak supply after gains in the production of the metal over the past several years. This means that production is likely to decline, supporting growth in the value of the precious metal.
  • Demand – The other factor associated with the recent gains in gold is demand. After all, when demand rises, the value of any commodity will grow. That's exactly what we saw from gold. The reality is that gold is a safe haven investment. So, when market movement is negative, investors look to gold as a way to keep their money safe. Throughout the beginning of 2015, markets have been doing incredibly poorly. This has led to increases in the demand for gold, and the value of the commodity has followed demand.

Why Gold Started To Fall Recently

Gold started to decline in price recently, creating big concerns among gold investors. So, what's causing the decline? Well, it all goes back to oil. Recently, we've heard stories that OPEC and Russia were in talks with regard to reducing oil production. In doing so, the value of oil climbed in a big way. This created a domino effect, leading to gains in the market as a whole. After all, oil dictates movement in the energy sector. Because market conditions are improving, investors are starting to look to the market as a way to make their money grow. As a result, investor demand for gold declined, leading to declines in the value of the commodity.

Is This The End Of Gold's Bullish Run?

In my opinion, the answer is no! The reality is that oil is pushing market values up. However, there hasn't been anything new in the oil market. In fact, the talks with regard to OPEC and Russia reducing production aren't likely to lead anywhere unless the US and other nations around the world reduce production as well. Also, the declines in gold are a result of the declines in demand. However, demand isn't the only part of the equation here. The bottom line is that supply is still at peak levels and expected to decline. Keeping these factors in mind, I'm expecting for the declines in the value of the precious metal to be a short term blip on the screen. The bottom line is that global economic conditions show that market declines are likely to continue. This will lead to further demand for gold, offering support to the price of the metal. That combined with declining supply will lead to future gains in the value of the precious metal.

What Do You Think?

********

Where do you think the value of gold is headed moving forward? Let us know your opinion in the comments below!

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.