Gold has come a long way this year. Almost every week since the start of the new year gold has managed to post an overall gain. Now the yellow metal is up 14% for the year and shows little sign of slowing down. The recent turmoil in Crimea has now caused gold to rise near the $1,400 per ounce mark. Also, there are basic economic factors at play that could push the yellow metal even higher. Here is a look at the events surrounding gold’s run.
Succession Referendum for Crimea
This Sunday a succession referendum is to be held in Crimea. A vote will take place that will have one of two outcomes. One, Crimea will join the Russian Federation; or two, Crimea will have more autonomy from Ukraine. The major issue is that this referendum is considered unconstitutional by not only the interim government in Ukraine, but the United States as well.
What does all this mean for gold? Geo-political turmoil of any type causes investors to worry. Stock markets falter and investors seek out safe haven investments such as gold to protect their wealth. Gold and other precious metals are the perfect storehouse for investors during these troubled times since geo-political tensions typically mean good news for gold.
Keep in mind there will not be a solution that pleases everyone. Ukraine, Crimea, or Russia will end up out in the cold. A recent article by CNBC had this to say:
“If there is some kind of resolution passed, and Russia pulls back and there’s a ‘Kumbaya’ moment, we’re going to see gold sell off precipitously. I think there’s only about a 10 percent chance of that happening, but as a trader, you have to be prepared for the long shot,” said Rich Ilczyszyn of iTrader. On the other hand, if violence breaks out, “that could be the other wild card, and in that case, you’ll see $1,420 or $1,430 quickly,” Ilczyszyn added.
Many experts believe there is still plenty of momentum behind the Crimea situation and that this will spill over as good news for gold. But one question remains: will the situation intensify or soften this weekend? With Russia conducting military exercises near its border with Crimea, it doesn’t appear the outcome will be a peaceful one.
McCullough: Gold in mid $1,400’s
Keith McCullough is the CEO of Hedgeye Risk Management. His background as a successful hedge fund manager and degree in Economics from Yale makes him a powerful voice in the investment arena.
In a recent interview he mentions two factors that caused gold to rise back in 2011. When the dollar was down and insurance rates were down, it was a “clean cut signal that U.S. growth was slowing,” thereby prompting safe-haven buying of gold. In his interview with Yahoo Finance, he states: “This is much like 2011… I do see gold making a series of higher lows and higher highs, you can easily get into the mid-1400’s in here in fairly short order.”
When asked specifically what “type” of gold McCullough would buy, be it mining stocks or electronic traded funds, he said he prefers “the precious metal itself – straight up.” McCullough feels that having the tangible asset is far better than having stock in a mining company who may or may not be fully honest about the amount of gold coming from the mine.
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