Gold Price Under Pressure As Economic Fears Continue To Subside

Gold was recently riding on highs. In fact, it seemed like nothing could bring the price of the precious metal downward during the first half of the year. However, more recently we've been seeing declines. At the moment, the price of the shiny yellow is trading near a two week low. Today, we'll talk about why the declines are happening and what we can expect to see from gold ahead.

Why Gold Is Falling

The declines in gold started as economic conditions began to improve. In August investors started to expect that the Federal Reserve was going to raise its interest rate in September. Of course, this would cause the USD to rise, putting global pressure on the demand for gold and leading to declines in the price of the commodity. However, recent economic data suggests that a rate hike isn't going to happen in September.

Nonetheless, the price of gold is continuing downward. The reason for this is relatively simple. At this point, near-term economic concerns around the world have deteriorated in a big way. While economic conditions are far from perfect in many regions, there are no immediate issues that investors are focused on. As a result, we're seeing less safe haven demand as loose economic policies around the world cause investors to look to the market for higher gains. I think the best explanation of the trend was offered by Commerzbank commodities analyst Carsten Fritsch and his team, who wrote the following in a note:

“Gold is still showing a tendency toward weakness... [as] ultra-expansionary monetary policy still seems to be seen as the ultimate remedy to all economic problems, be it in the eurozone, the U.S., China or Japan...

Consequently, the very low – and in many cases even negative – interest rates are likely to continue to push investors towards assets such as shares, real estate and gold... However, the gold price will remain under pressure in the short term, particularly because investor expectations are already very high and partly because financial market participants are not feeling any particular fears at present, which is why demand for gold as a 'safe haven' is tending to decline.”

What I'm Expecting To See From The Price Of Gold Moving Forward

My opinion with regard to the price of gold remains overwhelmingly bullish. First and foremost, it's important to understand that while investors seem to have forgotten the global economic risks, that doesn't mean that these risks do not exist. As mentioned in the Commerzbank note, gold is partly down because of weak safe haven demand as market participants are not feeling any particular fear at the present. However, the way the end of the year is shaping up bears striking similarities to last year, leading me to believe that we're likely to see big gains in gold ahead.

Think about it. At the moment, China inflation is falling. In fact, the inflation level has fallen to the worst the country has seen in several months. On top of that, while the Fed isn't likely to raise its rates in September, I am expecting to see a hike in December. Finally, oil price is starting to fall again as supply and demand lead to blues for the industry. All of these issues combined led to the massive gains that we saw in the value of gold throughout the beginning of the year. Consequently, I believe that a repetition of these conditions will likely lead to a sterling repeat performance as we move into 2017.