Gold Prices Down, but Not Out
Gold prices are well off their September highs. The yellow metal trades at $1,245 now, compared to $1,350 then. Has gold lost its glitter?
As it stands, there are a lot of investors and gold bugs questioning the value of gold. If you listen to the mainstream, this is the hot debate these days. Why? Because phenomena like Bitcoin are surging and have all of a sudden gotten a lot of attention across the world. They are asking if Bitcoin could take the status of the yellow precious metal, and if gold prices are declining because investors like Bitcoin over gold.
Before you jump to any conclusions, know one thing.
No, gold hasn’t lost its glitter. Gold remains a trusted source to protect value. Central banks around the world, for example, still hold the precious metal. And they are still buying. It would be a sign of concern if central banks were selling their gold to buy Bitcoin. Combined, they own roughly 34,000 tonnes of the yellow metal.
So, Why Are Gold Prices Declining?
If you have been following the gold market over the last four years, you would know that September to mid- to late-December has generally been rough for gold investors.
But, around mid-December, a buying opportunity develops and gains last until mid-March/April. Could this be the case in 2017 as well? It’s very possible.
Please look at the chart below to get some perspective. Pay close attention to the circled areas.
Chart courtesy of StockCharts.com
In December of 2013, gold prices bottomed around $1,181 and topped in March 2014 at around $1,388. This represents an increase of 17.53%.
In 2014, we saw the precious metal bottoming slightly earlier. The price topped in early January 2015. If an investor had bought gold bullion, they would have seen gains of roughly 12% in less than two months.
In mid-December 2015, gold prices formed a bottom around $1,050. This time, gains stretched till July of 2016. Gold prices reached $1,377. If you do simple math, this represents an increase of 31%.
In December of 2016, the precious metal price made a low. If an investor held till April, they would have gained over 14% on their bullion. If they held till September, their gains would be around 20%.
Gold Prices Outlook for the Short Term
Dear reader, if we assume gold prices repeat what they have been doing over the last four years, then gold prices could be setting up to soar.
How high could the gold prices go? On average, the precious metal has seen an increase of 20% after bottoming in December over the last four years. If this is the case this year, then we could be looking at gold prices at around $1,500 in the next little while.
If this is really the case, it wouldn’t be a bad idea to start looking at gold mining companies. Each time gold bottomed in December and increased in value, we saw mining companies show stellar returns.
For instance, between December 2015 and July 2016, we saw several mining companies double, triple, and more in value in that time. The real opportunity for investors could be in mining companies.