Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

History Shows that Gold Has Been In Worse Situations Before, But Still Managed to Recover

Commodities / Gold and Silver 2015 Dec 17, 2015 - 04:19 PM GMT

By: Nicholas_Kitonyi

Commodities

Gold has always been seen as one of the best when it comes to investments. Unlike other forms of investments, the price of gold does not rely on certain aspects that are guaranteed to change at some point in time like company management or competition.

This is what makes the yellow metal a haven for most investors during tough economic times. On the contrary, when economies are doing well, and particularly the US economy, gold does seem to struggle a bit due to its links with the US dollar.


The price of gold has been characterized by a series of lower highs and lower lows over the last 20 months or so, and before that period, it was a landslide decline following its peak high of about $1,956 back in 2011.

Currently, the price of the yellow metal appears set for another rebound, which could take it above $1,100 if investors buy into the Bull Run story.

With the current price pegged at about $1,058, there could be a significant upside by early next year as the effects of the US Federal Reserve interest rate hike wear out while at the same time uncertainty grows over the potential impact on US economy. The performance of the price of gold over the last few quarters illustrated the kind of suspense the market was in as people waited for the Federal Reserve to increase interest rate. The same situation along with other factors has affected the price of crude oil with the USD maintaining its rally against major currencies and commodities.

Gold is not losing its brand as a store of value

A country’s currency relies much on the economic performance. The US dollar has been on a rally since late 2013, which also marked the start of the massive decline in gold price. On the other hand, Crude Oil had been on a major decline dating back to mid-2012 and the consequential strengthening of the USD did not help the situation.

Gold price versus Crude Oil versus USD performance 10-years

At the beginning of 2014, the performance of the USD crossed over the performances of both the price of gold and crude oil and since then, the green back has remained bullish while gold and oil continue to move south.

Nonetheless, investors should borrow a leaf from the behavior of the three investment vehicles back in the year 2007 just before the start of the global financial crises. There was a similar cross over which was shortly followed by a recovery in the price of gold while the USD nosedived to negative territory performance wise as depicted in the chart above.

At the moment, it is hard to rule out a similar occurrence especially given the fact that a majority of the world’s leading economies are still struggling. When you look at China, Japan, the UK, Russia and the rest of the members of the Eurozone, it is easy to say that in terms of economic recovery, the world as a whole is not off the hook yet.

The last few years have demonstrated some stability thanks to a series of quantitative easing programs initiated by the EU, the US and leading Asian economies. However, with the US having ended its QE program a little over a year ago and increasing interest rates, there are question marks about possible consequences of raising interest rates prematurely. Inflation is still at 0.25% while wages remain low.

This is why I believe that the price of gold could be due a major rebound in the coming quarters as investors move to hedge their savings or investments with positions in gold. Whether they are going to buy gold bullion or simply trade long the yellow metal via various derivative platforms, signs are that gold will yet again demonstrate its ability to rebound from adverse situation thereby maintaining its brand as the best store of value.

Gold price 100-year inflation adjusted chart

In fact, the current situation is not any worse than what happened between 1980 and the year 2000. As illustrated in the inflation adjusted chart above, the price of gold managed to recover from its worst plunge in recent history bouncing from the inflation adjusted price of about $360 an ounce in the year 2000 to about $1,926 an ounce in 2011. Notably, the price of gold reached an all-time inflation adjusted high of about $2,073 in 1980. We are still way below those levels signaling gold bull market is far from over.

Given the performance demonstrated by the price of the yellow metal in recent history, there is no guarantee that investors should expect an immediate recovery. There have been worse situations in the past, which means that the price of gold could still fall further, but again the recoveries in the past mean that we can still expect the yellow metal to hit the top again.

Conclusion

The bottom line is that gold has demonstrated through history that its purchasing power is far more superior compared to other currencies simply by the virtue of the fact that the yellow metal is used to determine the value of various currencies.

Early this year, Switzerland’s National Bank SNB unpegged the maximum appreciation possible against the Euro in a move that saw bullish EUR/CHF investors lose money momentarily. Prior to that (in November last year), the Swiss nationals had just voted against a referendum that would have seen the Swiss Central bank acquire more gold.

Note that National central banks hold gold reserves as a guarantee to redeem promises to pay depositors and note holders (such as paper money), or to secure a currency. An increase in gold reserves often results in the devaluation of a currency. Investors should have read the signs early after the rejection of the move that could have resulted in a devaluation of the CHF.

Nonetheless, this also illustrates why gold remains to be a critical part of every currency thus making it the best store of value.

By Nicholas Kitonyi

Copyright © 2015 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in