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What To Make Of Gold Prices In 2015

By PikerTrader CommoditiesFeb 26, 2015 12:56AM ET
www.investing.com/analysis/what-to-make-of-gold-prices-in-2015-243153
What To Make Of Gold Prices In 2015
By PikerTrader   |  Feb 26, 2015 12:56AM ET
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For much of the past decade, gold has been viewed as one of the most stable and predictable investments in existence. The price of gold was rising slowly but steadily, and crises in world politics and financial markets continually proved that the precious metal had value as a protective hedge. And yet, in mid-2012, this popular outlook began to change as gold prices became more volatile than most modern investors are used to seeing.

Take a look at the 10-year gold pricing chart at online precious metal market BullionVault.com, and you’ll see the trend as clear as day. While gold today remains at a significantly inflated per ounce price than what we saw a decade ago, the steady rise that investors got used to between 2005 and 2012 is no more. Gold prices today look more like the mid-year prices from 2010 than the dramatic highs of mid-2011.

But what does all that mean for the remainder of 2015? With gold prices suddenly more volatile than they’ve been in a decade, it’s a tricky market to predict moving forward. But here are a few ideas about the commodity for the year ahead.

For starters, there are signs of continued improvement for the U.S. dollar ahead, and strength of the dollar has often served as an ominous sign for gold prices. In fact, since the aforementioned gold highs in 2011, there’s been a relatively steady rise in the value of the dollar that coincides fairly closely with the drop-off in gold. We recently wrote an article on bearish outlooks for the,EUR/USD and some of the same trends involved in this analysis can have a similar impact on the gold market. Basically, as confidence in the dollar increases, the need for currency traders or those looking for financial hedges to invest in the euro, or in gold, decreases.

That’s not to say that there’s only bad news for the gold price outlook. While the dollar tends to play a significant role in what happens with gold, it is far from the only factor with influence. Another major factor is demand in the Far East, where India and China have historically been among the highest volume of consumers for the precious metal. And at the moment, this region is providing something of a mixed outlook. While demand in both India and China dropped off in 2014, a recent analysis posted to Reuters.com suggested a divide moving forward. Currently, India sits as the world’s biggest gold consumer, with demand looking healthy moving forward. Meanwhile, various issues in China, including anti-corruption policies weakening the market, have contributed to a shrinking demand.

Additional factors matter as well. For example, major world conflicts have often served to strengthen the value of gold due to investors’ search for financial havens. For that reason, ongoing tension between Russia and Ukraine, as well as in the Middle East, still has the potential to boost gold prices should a situation escalate. But ultimately, the reason for uncertain outlooks on the price of gold in 2015 is that the two main factors—worldwide demand and the value of the dollar—are somewhat uncertain themselves. Demand has fluctuated in recent years, and while the dollar appears to be on relatively strong ground, many are hesitant to bet on continued stability.

As long as these influential aspects of the market remain in flux, the price of gold may remain less predictable than we’re used to.

What To Make Of Gold Prices In 2015
 

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What To Make Of Gold Prices In 2015

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