Why Is Gold On The Rise?

Gold has always been considered to be a safe haven investment. However, after the price dropped in 2014, many people started to question the validity of Gold as a safe haven. However, as always, gold is making a comeback; proving that in the long term, it is and has always been a solid safe haven. Why is gold on the rise this time? There are so many different factors that can have an effect on the price of gold; which one or combination of factors is causing it to go up? Here’s my take on the movement.

The 3 Most Likely Factors Causing Gold Prices to Grow

Oil Prices Dropping – While in many cases we see a strong correlation between oil prices and gold prices, in this particular case that correlation is incredibly weak; and there’s a reason for that. Generally, when oil drops, we see small, less than 10% falls. This time however, over the past 7 months, oil prices have fallen by nearly 60%. That’s a dramatic drop!

These are the types of price changes that really start to get investors worried! With a nearly 60% drop in oil prices, one has to imagine that the energy sector is going to feel the pain, but they’re not going to be the only ones. As detailed inlast week’s Market Monday with Josh, low oil prices could cause a big hit banks, the steel industry as a whole, and more.

As these industries feel the pain, investors will do what they normally do; pull back and search for safe havens. Throughout history, one of the most popular safe haven investments has been gold and that’s exactly what’s happening right now.

Concerns Over Saudi Arabia – While the United States and Saudi Arabia don’t exactly have a perfect relationship, one of the key factors that kept things civil between the two countries was King Abdullah. However, King Abdullah passed away last week at 90 years old. The passing of King Abdullah leaves a couple of questions for investors…

• What Will Happen To Relations Between Saudi Arabia And The United States? – This is a major question that needs to be answered. As mentioned above, King Abdulla was a major factor in civil relations between the United States and Saudi Arabia. Without him, how will the new leader approach this crucial relationship? Will we see political turmoil?
• What Will Happen To Oil Prices? – Chances are that oil prices will continue to fall. However, because Saudi Arabia plays such a major role in global oil prices, investors are wondering how far the new leader will push the limit.

When we look at the market under these conditions, it’s reacting just as most experts would expect. As concerns of geopolitical tensions grow, markets tend to falter and investors start to look toward safe havens. As mentioned above, one of the first investment most investors think about when they’re thinking safe is gold. As a result, questions over King Abdullah’s health and his eventual death have most likely lent a hand to the rise in gold prices.

ECB Stimulus Announcement – Another major factor associated with the growth of gold is the announcement of the bond buying program that the ECB has decided to employ. As the economy in the Eurozone continued to have problems, it has become more and more clear that a stimulus program was on the way. Recently, these expectations came true. However, the stimulus plan the ECB put into effect is far more drastic than any economist may have guessed.The ECB’s plan includes quantitative easing in the amount of 60 billion Euros per month. That means that every month, the ECB will be purchasing 6 billion euros in private and public sector assets.

While most economists and other financial experts expected the ECB to announce a stimulus program, no one expected the stimulus to be so big; which is where the concern is growing. Investors are starting to worry that if such a big plan is needed, other currencies around the globe may not be doing as well as one would assume; again, causing a shift to safe haven investments like gold.

Will Gold Continue To Grow?

Personally, I think the price of gold will continue to grow. The reason for that opinion stems from the fact that I think the largest factor in gold’s growth is the long-term effects of low oil prices. Investors are starting to realize that oil is going to stay low for a while; causing harm to other industries and the market as a whole. As a result, we’re seeing more demand for safer investments. With that stability of currencies around the world in question, and the death of King Abdullah on top of the oil price drop, gold really has nowhere to go but up. Thanks for reading everyone; I’ll see you next week!