Monday gold saw a 6-month high of just over $1,390 per ounce. As the week continued on, however, gold lost about 3% of its value. Tensions in Ukraine have cooled down recently which has also brought gold down. Furthermore, comments from the Federal Reserve this week had an adverse effect on the yellow metal. These points considered, however, gold is still up 11% for the year and is outperforming a surprising handful of other investments.
Ukraine and Gold
Tensions in Ukraine have eased for the moment. Russia has stopped its aggression (for now) and it seems Ukraine will lose Crimea to the Russian Federation. The United States is not happy with this resolve, but at least a temporary conclusion has been met. For now, the situation seems to be coming to an end but with such large geo-political issues as these, nothing is really over.
How did this affect gold? When tensions between nations such as Russia, the United States, and/or other countries arise, it typically means bad news for stock markets across the globe. Especially those stock markets of the corresponding countries involved. It’s plain to see that the last couple of weeks haven’t been the best for the U.S. and Russian stock markets. When this happens, investors look to protect their wealth with gold. Gold has proven to be a safe haven away from the volatility of the stock market. Therefore, as the turmoil overseas began to reduce, gold also saw a small downturn in price.
The Federal Reserve and Gold
The chair of the Federal Reserve, Janet Yellen, mentioned that the stimulus program could come to an end soon and, furthermore, it may be possible to raise interest rates by the middle of next year. The present economic stimulus program prints $65 billion dollars per month to buy mortgage-backed securities and bonds. This process known as quantitative easing has been good news for the yellow metal for some time now.
Naturally, as more money is printed, the overall value of that currency decreases. In this case, the present monetary policy threatens the value of the dollar, causing investors to once again safeguard their wealth. Safe-haven buying of gold has been a common way to ensure the value of investors’ wealth remains protected. Again, it seems that gold has taken a step back this week due to comments by the Federal Reserve that seeming to be putting an end to the monetary stimulus.
Things are still in flux according to Myra Saefong, global markets editor for Market Watch. On Friday, March 21 she made the following statement about gold: “…its path is far from set. Developments between Ukraine, Russia and the West are still fluid, and hints from Federal Reserve Chairwoman Janet Yellen that a U.S. interest-rate hike could take place sooner rather than later could make bond yields more attractive.”
Gold Up 11% for the Year
The S&P 500 index has only managed to gain a lackluster 1% this year. Gold bested that in less than 2 weeks. Bitcoin fans were buzzing when it managed to take a massive leap in 2013 while gold was underperforming. Enthusiasts were even claiming that Bitcoin could be the next gold. Sadly this has not been the case and the digital currency is down about 20% to date.
Although the yellow metal may be down for the week, it’s still up a considerable amount for the year. As we enter into the remaining three quarters of 2014, savvy gold investors will undoubtedly have their eyes on gold as a proven safe haven for protecting their wealth.
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