Gold Prices Could Surge as Investors Ask if the Precious Metal Is Worth Holding
In 2013, investors were faced with one big question: is gold worth holding in their portfolio? At the time, they said the yellow precious metal wasn’t worth it. As a result, gold prices tumbled lower.
The selling continued for two years. It started when gold was trading at around $1,700 and ended in 2015, when gold prices were at $1,050. This represents a decline of over 38%.
As gold prices fell through the floor, gold-related investments started to decline in value too.
Now What?
You see, over the past few years, things have changed a lot.
For example, back in 2013, interest rates were expected to go higher, the Federal Reserve was expected to stop printing money, and the overall health of the U.S. economy and the financial sector was getting better. On top of all this, the stock market was doing great.
So it made sense for investors to rush out and sell gold, instead buying assets that were going up in value. Gold was used as a hedge against uncertainty and volatility, and we had a lot of that before 2013.
Now, we see the opposite of what we saw in 2013.
For instance, the U.S. economy is facing some headwinds.
The Federal Reserve has said it will be patient with interest rate hikes. In other words, it’s nervous and thinks a lot of uncertainty could be ahead. With this, there is already noise that suggests the Fed could be lowering its rates as early as the second half of 2019.
Beyond this, there’s a storm brewing in the global economy.
Major economic hubs are slowing down at an alarming pace. A global recession can’t be ruled out at the moment. It is also expected that major central banks around the world could be looking to lower rates and governments around the world could be running deficits.
What to Watch Going Forward
Dear reader, I think we are at an inflection point.
I have a very strong feeling that those who ditched gold back in 2013 could be looking at the yellow precious metal and asking if gold is worth buying now.
Since late 2015, we have seen investors have a positive view on gold rather than a negative one. Between 2012 and 2015, they outright hated it.
We have already seen big banks starting to have a positive outlook on gold, too.
What’s really needed going forward is excitement. We have yet to see it. But in the coming quarters, I wouldn’t be shocked if we hear outright “buy” calls from big banks and reputable investors say something along the lines of “gold is great.” I wouldn’t even be surprised if they report that they have built positions already.
I am also keeping a close watch on inflows at exchange-traded funds (ETFs). Why? Because no one likes to hold gold bullion. You incur storage costs with it. An easier way to invest in bullion is by buying gold-backed ETFs. If their inflows increase, it would be a sign that investors are jumping to buy the precious metal.
Lastly, watch the central banks. They have quietly accumulated a lot of gold over the years and they still have a lot of money. That means they could be buying more.
Keeping all this in mind, I remain bullish on gold prices for the long term. Gold has underperformed relative to the overall stock market over the past five years. The next five years could be a lot different.