Gold Prices Start To Fall Again

Wednesday, March 23, 2016

Gold prices have been following a roller coaster for quite some time. In the beginning of the year, the value of the precious metal was climbing as the global stock market was struggling in a big way. However, as stocks started to recover in February, the value of gold started to reverse, heading downward. Nonetheless, that wasn't the end of the story. Since then, the Federal Reserve and attacks in Brussels sent the value of gold upward. However, today, we're back to declines yet again.

Today, we'll talk about why we're seeing declines in gold -- and whether or not the declines are likely to continue.

Why Gold Is Declining Today

Recently, as mentioned above, the Federal Reserve helped to support gains in the price of gold. This happened as the result of the Federal Reserve's decision to keep interest rates low. When they did so, they essentially reduced the value of the USD, and since gold is priced using the USD, this made the commodity more widely available in nations outside of the United States.

However, things are changing yet again. You see, now that the USD has priced in the changes from the Federal Reserve, the currency is starting to gain in value. So, it's having the opposite effect on gold. As the USD climbs in value, gold becomes more expensive in other nations, leading to declining demand, and ultimately declining values.

Will The Downtrends Continue?

This is the million dollar question, quite literally. The truth is that I don't have a crystal ball that allows me to see into the future. However, as a market analyst, I've learned about quite a few tools that help me to predict what's coming up with incredible accuracy. With that said, I don't believe that we're going to see declines for too much longer. Sure, they are likely to continue in the short term, but in the long run, gold is likely to climb. Here's why...

  • Market Gains Are Based In Sentiment Not Fundamentals – In the beginning of the year, when the stock market started to fall apart, I got pretty excited. Now, I don't want people to lose money. However, I've been watching the market for some time, and at the strong growth rate we've seen, valuations were getting to be way too high. Well, after the last month of growth, we're getting back to this same crucial point. So, I'm expecting that the market will take another downward turn relatively soon.
  • Global Economic Conditions Are Poor At Best – Gold is heavily tied to the economy. When economic conditions are negative, the value of the precious metal tends to climb. Well, look around my friends! Even here in the world's strongest economy, economic conditions could be far better. However, things get worse when you look elsewhere. In fact, several central banks around the world have pushed interest rates into negative territory in an attempt to cause growth to start up again. Ultimately, the global economy is a major cause for concern.
  • Acts Of War – Yesterday, Brussels was attacked by ISIS. The attacks were centered around the Brussels Airport and Brussels Metro Station in which more than 30 persons lost their lives and hundreds were injured. This isn't likely to go on without response. In times of war and crisis, gold gains!

The Bottom Line

The bottom line is that when it comes to any financial asset, we're going to see fluctuations in value. That's no different from gold. However, when looking around, it's clear to see that there is plenty of data supporting growth in the price of the precious metal. So, don't let the downtrend fool you, gold will climb in the long run!

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.