Watch For Big Gains In Gold Tomorrow

Wednesday, March 9, 2016

Gold has seen quite a strong start to the year 2016. However, it's my opinion that we've just seen the beginning. In fact, I'm expecting to see incredible gains in the price of the precious metal tomorrow that are likely to last for some time. This will be the result of a news release from Europe with regard to the state of the European economy and decisions made by the European Central Bank. Today, we'll talk about what we're likely to see out of Europe tomorrow, how it has any bearing on gold, and what we can expect to see from the value of the precious metal moving forward. So, let's get right to it...

The ECB Is Set To Make A Big Announcement Tomorrow

Tomorrow is a big day for Europe and the global economy as a whole. The European Central Bank has been in the midst of a meeting with regard to the state of the European economy. The meeting is designed specifically to discuss stimulus programs the bank is currently running. For example, we're seeing heavy quantitative easing as well as negative interest rates out of the Eurozone at the moment.  Tomorrow will be a big day because Mario Draghi, the President of the European Central Bank will be announcing the decisions made by the bank. This could go one of two ways...

  • Economic Stimulus Remains The Same – The ECB has a history of taking a wait and see approach. So, when they have meetings, it's more likely that they do nothing as they wait to see what their previous actions have done. So tomorrow, we could hear that quantitative easing and interest rates will stay unchanged.
  • Further Stimulus To Be Added – Given the current state of the European economy, it's also likely that the ECB makes the decision to expand economic stimulus by pushing the interest rate further into the negative or expanding quantitative easing further.

What This Has To Do With The Price Of Gold

At first glance, it may seem as though this has absolutely nothing to do with the price of gold, but the reality is that it has everything to do with the price of the commodity. You see, gold is a safe haven investment. Therefore, when signs of economic struggle happen, investors start to look to gold to keep their money safe. Ultimately, this causes the demand for gold to climb, leading to massive gains in the value of the commodity. It's exactly what we've seen throughout the beginning of the year. As global markets declined, the value of gold skyrocketed!

What We Can Expect From Gold Tomorrow

Tomorrow, I'm expecting for the value of gold to climb regardless of what decision the ECB comes to. The reality is that either way, there's support for the precious metal. Here's why...

  • ECB Makes No Change – If the ECB makes no change at all, investors will expect for the European economy to only get worse. In which case, the value of gold will climb as investors become even more concerned with the state of the European economy.
  • ECB Does Make Changes – If the ECB does decide to expand stimulus, this will also likely have a positive effect on the price of gold. That's because if they do make the decision to further reduce interest rates or expand quantitative easing, they will essentially be admitting that the European economy is struggling worse than they thought... leading once again to higher demand from safe haven investors and growth in the price of gold. 

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.