Gold has been having a great time, however the spot price of gold hit its lowest point since the start of the year and it has been hovering around the same spot for a while now. This means that people are less anxious about the economy and that geopolitical tensions have eased. For investors, this is a great time to start putting money in gold.
The spot price of gold and many other commodities is affected by what happens in the US and so far the American economy has improved over the last couple of years. US household income is going up and the unemployment rate is decreasing. The Federal Reserve band of America has increased interest rates which indicates that it has confidence in the country’s economy. However, that could soon change.
The US President Donald Trump has taken some unpopular decisions that could affect the country’s relationships with the rest of the world. His very election was dogged by controversy about possible collusion with Russia. He has pulled the US out of the Paris Accord on Climate Change, he has pulled out of the Iran deal and effectively reinstated sanctions against the country. He has spewed a lot of racial rhetoric and his border wall plan One of these controversial decisions is the raising if tariffs for Chinese goods. This has sparked trade tensions between these two countries that happen to be the largest economies in the world. China responded to the US in kind by putting up more tariffs on its US imports. If this situation does not get resolved soon, it will have major effects on other countries’ economies.
Economic tensions often lead to a rise in the price of precious metals like gold as investors rush for safe haven assets. It has not played out that easily this time around. The price has not gone up as high as it should have. It seems that investors are more averse to the risks posed by a trade war between the US and China. Some fear that the trade war will affect inflation in the country especially when the cost of importing goods and industrial metals like aluminium and steel. The sudden increase in import costs on goods that are critical in industries like the automobile industry, the computer as well as the construction industry.
Some industry professionals believe that the price drop is driven by the collective reaction to the trade tensions between the US and China. We may not be able to predict what the exact spot price of gold will be in coming months one this is for sure gold has always been and still is a great safe haven asset. The drop could be a knee jerk reaction from the market. Gold’s appeal as great hedge against the rise of inflation is still there. The trade issues were unexpected and shocked many people. As everyone gets used to the new reality then gold can reassert itself and we will see the spot price rise once again.
Sources:
https://www.forbes.com/sites/simonconstable/2018/06/18/5-reasons-the-drop-in-gold-prices-shouldnt-worry-investors/
https://www.gold-eagle.com/article/road-war-buying-fear-–-gold