Will Gold Continue to Fall?

Will Gold Continue to Fall?

Over the last year, gold markets have had a very difficult time in gaining bullish momentum.  There are a few different reasons for why this has occurred.  Stock markets have rallied (garnering most of the market’s attention), and this has lifted sentiment at the expense of precious metals.  Additionally, we are likely to start seeing a rising interest rate environment and this is something that, historically, have done little to benefits assets that are tied to the value of gold and silver (this includes stock ETFs and commodity currencies, as well).  

In the chart above, we can see that the year-to-date price of gold is currently lower by almost 15%.  Many market analysts have started to suggest that this marks an excellent opportunity for long-term investors that are looking for solid values at the lower levels.  From a risk to reward perspective, this is difficult to argue given the fact that the potential for downside is looking increasingly limited.  So we will need to look for additional fundamental drivers that have the potential to lift metals prices in the months ahead.

Safe Haven Buying

One factor that would propel gold prices would be a sustained decline in the global stock market.  We have already seen some of this type of activity in the last few weeks and any additional volatility or uncertainty that is created by this type of scenario could send gold prices back toward new highs for the year.

“When we look at metals market from an historical perspective, positive trends start to emerge when stock prices are in decline,” said Tony Davis, metals sector analyst at Atlanta Gold and Coin.  “This has helped gold prices stabilize over the last few weeks.”

So, the real question going forward is whether or not the broader market is ready to start preparing for lower valuations in the equities space.  If this summer’s activity is a leading indication or bear declines in stocks, we could see some massive rallies in gold given the fact that prices are still trading near their lows for the year.  These are factors that will continue to show importance for the remainder of 2015, so even if you are entirely focused on the forex space it must be remembered that gold prices tend to filter into a variety of different asset classes.  Any major changes here would be something that would generate significant upside in both gold and silver prices.