The gold price reached to its highest worth since January 2015. Gold is up 22 percent this year valued at $ 1, 295.40 per ounce.
At the peak, spot gold was valued at $ 1, 303.60 an ounce. It then lowered to $ 1, 295.40. The decrease brought it up 0.1 %. Future June delivery for US Gold is up $ 7.10 at $ 1, 2970.60 an ounce.
Gold has lifted the SPDR Gold Trust ETF (GLD) nearly 6 % in the last month. Capital Economics believe Gold could end the year around $ 1, 3500 an ounce and could increase to as much as $ 1, 400 by the end of 2017.
Gold Futures Soar After Jobs Data Released Up $20 to $1292.00
— The Capitalist (@Capitalist_Site) May 6, 2016
Stock markets and gold
Experts are staying bullish in the gold market due to equity markets being in the midst of a bear market.
- Bull Market – When stocks are expected to continue to increase. The Bull Market is a type of market people look for when buying in.
- Bear Market – When stocks are falling, or the market looks bad. Profitable stocks are hard to chose during this stage.
Senior vice president at Schaeffer’s Investment Research, Todd Salamone, suggests now to be the time to sell your gains in the stock market and increase your gold exposure.
In 2016, equity markets saw the worst start to a year . Add that to the Wall Street turmoil that sent investors seeking safety, and you have the perfect combination for the gold strength.
The United States stocks turned positive for the first time in March. Since then, they have continued their climb with minor dips.
While this still factors into the price of gold, its effects are diminishing. So, what’s mainly causing the increase in price for gold now? The U.S. dollar.
US Dollar and gold
The value of the U.S. dollar is measured using three components; exchange rates, foreign exchange reserves, and Treasury notes.
Exchange rates measure the amount of one currency that can be exchanged for another. The Foreign Exchange determines the rates known as forex. These rates are monitored minute by minute due to constant change.
A few factors that go into deciding the exchange rate is
- Central bank interest rates
- Country’s debt
- Economic strength
Foreign Exchange Reserves
Foreign exchange reserves are assets held by a country’s central bank. The Bank holds multiple currencies or other monetary authority.
Banks are increasing their holds on euro-denominated assets despite the eurozone crisis. These include:
- High – quality corporate bonds
- Special drawing rights (SDR)
- Deposits of reserve balances within the International Monetary Fund (IMF)
Treasury notes are fixed income investments. These are notes or bonds sold by the United States Treasury Department.
The Government guarantees the Treasury notes. Due to that, they have the lowest interest rates of all fixed-income security.
History of the US Dollar
The US dollar hit its lowest since 2015. The direct correlation between it and gold should be noted. Against most significant currencies the trade was set at 92.26.
Many factors led to the decline in worth. However, the most important reason is the constant expansion of the country’s money supply.
In 1913, the Federal Reserve Banking (FRB) system was adopted in America. This replaced the gold standard replacing it with a system essentially allowing an unlimited amount of paper money to be created as often as seen fit.
It then coupled with banks being capable of borrowing from reserves that did not necessarily have gold on deposit. Thus, the fiat system was born. The fiat system is also known as the faith-based system due to lack of backing by a physical commodity.
The U.S. dollar continues to plunge. The latest sent it down 2%. The dollar hit a low with the Japanese yen falling below 106 yen. It is expected to approach 100 yen.
According to Forbes, the world trade could begin to move away from the dollar. China has spoken of plans to diversify its assets.
Gold increases when the dollar decreases due to the metal gold being recognized worldwide as the standard of value. Gold becomes the desired currency due to its stability compared to the US dollar.
As a commodity, gold is viewed as a more stable investment when stocks and the dollar’s worth is decreasing. If the United States dollar were to collapse, it is possible the currency could be backed by gold once again.
There are occasions that the dollar and gold value can increase at the same time. This increase is rare though as they typically have an inverse relationship. If a country experiences a crisis, investors will turn to a safer means of currency. This crisis could be the US dollar and gold.
While the future of stocks and the US dollar are unknown, it is predicted that the value of gold will soar through the coming year.