Irene West San Diego Wealth Building Advocate says “Gold has been fluttering around the $1,100 and $1,200 for a couple of years now without much movement.”
It has repeatedly shown signs of weakening as an investment with notable dips in the last three years. For example, at the beginning of August gold’s spot price broke below $1,100, the lowest price point in a year. No surprise, lots of folks think that gold is at the end of a commodity run, and as soon as the Fed Reserve raises the prime rates gold will begin to drop significantly. Of course, this logic entirely ignores one basic fact: the general stock market is long overdue for a correction, which will drive demand for safe harbors like gold.
A number of reasons are in play why gold will likely be a good position to have in the next few months. If the Fed Reserve does indeed raise rates, it will be the final hit on a shaky bull run, because the cost of money will go up. The market has been enjoying available cash at little or no interest, so any cost increase bites right into a positive direction and creates a braking effect. Additionally, the loss in oil prices as well as in other “reliable” commodities means that many folks will trying to preserve their values versus losing the in companies impacted directly by oil price changes. The chase for value preservation will move more folks to good, creating more demand and driving price up further. More to consider, governments are just now recovering from the effects of the 2009 Recession, delayed for them in the loss of tax dollars. They will not be interested in giving up returning tax revenues just to make it easier for business to operate. That too will contribute to more costs for businesses, slowing their growth and share price growth.
Finally, and this is the big one, we are going into a Presidential election without a clear forerunner and no incumbent. That means the big power position is up for grabs and anyone could get it. Politically instability is just the thing to cause a national market to tank; we saw this happen vividly when the Bush-Gore campaign occurred and then was prolonged by the vote count scandal in Florida. Again, people will run to gold or security, having been burned repeatedly by the market during times of ambiguity. Instead, gold is solid, predictable, physical and is not connected to the dollar or politics. It’s the ideal value preserver during potentially risky times ahead.
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