The Gold Investment Climate: Ripe For Entry?

Wednesday, February 24, 2016

goldThere’s no doubt that 2016 has been an interesting one for gold. Though the stock market is sputtering and there continues to be a lot of pessimism about the quality of the economy as a whole, the price of gold has had some investors seeing a “bull market” for the precious metal.

But as the old phrase goes, not all that glitters is gold. Gold hasn’t seen a meteoric rise just yet, with some stock market gains prompting a little bit of caution before investors continue flocking to the precious metal. With investors bearish on the economy and yet bullish on gold, is this investing climate the calm before an inevitable storm of gold investment? Let’s take a closer look.

Gold Performance

Tuesday morning saw a modest uptick in gold's price, with the precious metal gaining around 1% and even higher during the daily fluctuations. To some, this suggests the possibility that gold has hit the “bottom” of a recent correction—and may be due for greater upticks throughout the week.

The key here: how you feel about the world economy. Even as far back as late January, Bloomberg was asking if the U.S. was recession-bound, and economic news has not improved since. With Bloomberg more recently reporting that some U.S. states have already entered a recession, anyone with a bearish view on the economy is appearing to have their views validated. Bloomberg quoted Dale Oxley, a West Virginia homebuilder, as saying, “Everyone is going to have to tighten their belts…the next couple of years are going to be difficult.”

With this much pessimism in the air, the investing climate for gold may be rife with opportunity—particularly if you, like many investors, see gold as a “safe haven” investment.

Gold As Safe Haven

One of the most intriguing things about the gold investment climate this year is that gold really does seem to have an “equal and opposite” reaction to market news. MarketWatch.com reported that gold futures for April have jumped today after a slump yesterday, citing “broader optimism in the financial markets” translating to rallies for stocks and oil.

One way to translate: as people see equities and oil improve, they tend to see gold slump, and vice versa. For gold investors with a bearish outlook on the economy, this might mean higher gold prices in the future.

The key is how many investors do indeed use gold as a safe haven investment. Bloomberg noted that this may be the case, as Harmony Gold Mining Co. and Acacia Mining “agreed to lock in profit margins at some of their African operations in a return to hedging strategies that undermined the industry during the metal’s bull run in the 2000s.”

This is a move aimed at taking advantage of high prices of gold and the low value of local currencies. What’s notable is that these moves were linked to the increase of gold prices throughout the 2000 decade, a decade that saw gold move from around $400 to well over $1,000. Past performance is, of course, no guarantee of future success. But with the way the winds are shifting, it may indeed be the right climate for Gold Bugs this month.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.