This week saw Gold rise to a 2018 high as investors reacted to the widely expected decision by the Federal Reserve to keep interest rates unchanged.
Hovering around the $1300 mark, gold has proven to be a more volatile commodity over the last few years, with stronger fluctuations than in previous decades. What was once considered a safe, no frills investment has recently had to compete with rising interest rates and more volatile markets in general. The introduction of cryptocurrencies into the equation and its volatility has impacted upon other assets prices, gold included. So, is Gold still the ‘safe’ investment as before and is it still a good investment?
In a report released by the World Gold Council, it was revealed that gold demand recorded its weakest first quarter of the year for a decade. Total global demand for the yellow metal stood at 973.5 tonnes in the period between January to March. This was down 7% on a yearly basis and the weakest first quarter since the financial crisis of 2008.
The largest decline in demand came from the investment sector, with gold IRA companies reporting coin and bullion consumption down by 15 percent.
So, if demand is falling and the price stagnating, is Gold a good investment? Well, Ron Paul seems to think so. The former Congressman and Presidential candidate said in an interview with CNBC that people should purchase gold to protect themselves against a 50% correction in the equity markets.
“The fundamentals show that the spenders are in Washington. They’re alive and well. The deficit is skyrocketing like never before. The market is destined to go down.” Said the libertarian.
Gold has always traditionally been seen as a safe haven investment. When there are political, economic and geopolitical concerns, people turn to gold as a safe investment. What we are seeing at the moment, is that the possibility that rising global tensions will support gold buying in the foreseeable future. Trade war talks between the two largest economies in the world – the US and China, if degenerates further could see gold as a safer investment that stocks, which would get affected most by an escalating trade war.
Another reason to think that gold will find further support are geopolitical concerns in the Middle East (again!) If tensions escalate further with Iran, the low risk element of gold will attract investment.
However, keeping gains in check will be rising interest rates. Although the Fed decided to keep interest rates on hold this, it is anticipated that there will be at least two more interest rate hikes before year is out. Any raise would boost the US Dollar and make push dollar priced commodities such as Gold and Silver a more expensive and less attractive investment.
There’s every reason to believe that gold can climb higher this year, possibly above the $1600 mark. A lot will depend on whether there is a crash or market correction in equities, but gains will be kept in check by rising interest rates worldwide. Overall, it’s hard to see gold down lower than it is and it’s still a good investment with some modest gains to be made this year at least.