Market Panic And Supply Pressure Sends Gold Soaring!

Friday, February 12, 2016

Gold has been struggling for quite some time now. However, things are starting to change, and in a big way. The value of the precious metal has been soaring, and is likely to continue doing so. So, what's causing the recent bullish activity in the precious metal? Well, there are two big factors. One is global market panic and the other is supply pressures. Between these two factors, the value of gold is seeing incredible growth, as shown by the chart below. Today, we'll talk about the global market panic, supply issues, and whether or not the growth in the value of gold is likely to continue.

Global Market Fears Help To Push Gold Demand Upward

Gold, as with any other commodity is largely at the mercy of supply and demand. However, as I've said countless times in the past, there's a certain level of complexity added to gauging the value of the precious metal by the fact that it is considered to be a safe haven investment. With that said, market conditions in the United States and around the world play a crucial role in price movements in the value of the metal.

Because gold is a safe haven investment, when stock market conditions are considered to be negative, investors look to the precious metal as a way to keep their money safe. This causes gold's demand to rise, ultimately causing the value of the precious metal to grow. At the moment, we're seeing a perfect example of that. In December, the Federal Reserve increased its interest rate, leading to pressure on the market. Then, in early January, we saw the straw that broke the camels back when the Chinese market crashed. Since then, we've been seeing heavy declines in financial markets around the world as global economic conditions prove to be a cause for concern. As a result, gold is spiking in value in a big way. However, investor demand isn't the only factor that's pushing the value of gold upward. Supply is playing a big role as well.

Changes In The Supply Of Gold

As the old law of supply and demand tells us, supply plays a drastic role in the value of any commodity. This is true for gold as well, and we're seeing a great example of it at the moment. Over the past 5 years or so, the supply of the yellow metal has been climbing as mines pushed themselves to produce more. However, on January 17th, it was announced that the world's leading gold miners have reached peak supply. This means that they can't push for any more growth in supply. More importantly, it means that the production of the metal is likely to decrease. In fact, it's expected that in the year 2016 alone, the production of gold will shrink by about 3%.

What We Can Expect To See From Gold Moving Forward

While some financial experts argue that the growth in gold's price is going to prove to be nothing more than a blip on the screen, I have to disagree with this assessment. In fact, what I believe we're seeing is the beginning of a major bull run for the metal. The reality is that fundamentally, gold seems to have nowhere to go but up. Looking at the reasons for the drastic increase in value, it's easy to see that this is likely to be long term. After all, with economies around the world struggling, global market conditions aren't likely to improve any time soon. Also, considering the reductions in production that are coming, more support will be offered to the precious metal. All in all, things are looking great for gold moving forward!

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.