Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Investors’ Limitless Risk Appetite - 27th Jan 21
3 Dividend Paying Stocks to Ride the New Housing Boom - 27th Jan 21
Biden Seeks Huge Spending, Globally Coordinated Tax Hikes - 27th Jan 21
Will Inflation Make Gold Shine in 2021? - 27th Jan 21
Amazon AI Stocks Investing Analysis 2021 - 27th Jan 21
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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

6 Critical Money Making Rules