Gold hasn’t been doing very good in the market as of late. In fact, over the past several trading sessions, the price of gold has been seeing some pretty heavy declines. However, as the week began, we started to see a nice jump in the gold price . So, what’s causing the increase in the value of gold and are gains likely to continue? Today, we’ll talk about what’s happening!
What’s Causing An Increase In The Price Of Gold
As mentioned above, the price of gold has been headed downward recently. Ultimately, the precious metal is feeling pressure associated with improving economies and increasing central bank interest rates. Nonetheless, the price of gold started to head up as the week began. So, what’s the deal, why did we see a bump in the price of the precious metal?
Chances are that the gains we saw early on were the result of bargain hunters. At the end of the day, the price of gold has been on a bit of a downtrend. Any smart investor knows that the time to buy is when fear is high and the time to sell is when greed is high. It’s the basic premise of the market, buy low, sell high, make a profit!
With gold feeling pain as of late, it only makes sense that investors may be seeing an opportunity in the low prices, and hunting for bargains while prices are low. Of course, some bargain hunters may not be investors. After all, we shouldn’t forget the fact that preparations for the wedding season in India are underway. Gold is an important aspect of these preparations, and with prices low, wedding planners and participants in the region are likely taking advantage of the bargains as well.
Will The Gains In The Price Of Gold Continue?
At the end of the day, I don’t have a crystal ball that allows me to look into the future. So, I don’t have a definitive answer as to whether the price of gold is going to head upward or downward over any given period of time. However, I am armed with data, and what the data suggests isn’t necessarily a good thing for the precious metal. Ultimately, there are a few factors that are currently weighing heavy on the price of gold:
- Increasing Federal Funds Rate – One factor that’s likely to weigh on the price of gold in the year ahead is the Federal Reserve. That’s because throughout the year 2018, the United States Federal Reserve plans on increasing the federal funds rate multiple times. This rate is directly tied to 10-year bond yields, a direct competitor to gold with regard to safe haven interest. As 10-year bond yields increase, gold has a history of falling in value, generating one of the strongest inverse relationships we see associated with the precious metal.
- USD – The economy in the United States seems to be improving rapidly. In fact, fears of fast paced inflation as a result of economic improvement are the root cause of the coming Federal Funds Rate increases. With improving economic conditions, the value of the USD is improving as well. With gold priced using the USD around the world, gains in the value of the USD in comparison to other currencies will generally lead to declines in the value of gold as the precious metal becomes less accessible in nations outside of the United States due to currency exchange rates.
- Improving Global Market Conditions – At the moment, markets around the world seem to be making their way to bullish territory. As market conditions continue to improve around the world, safe haven demand for the precious metal will likely decline.
Overall, gold isn’t positioned to have a very good year this year. With mounting pressures in the safe haven space, demand for the commodity could see declines, leading to declines in its value. While there will be spikes here and there, like the one we saw early in the week, chances are that more declines are ahead.