Gold dropped below the $1,300 per ounce mark this week, down more than $30 per ounce from the close of last week. It’s important to note the reasons for this lull which includes the recent signs of U.S. economic growth as well as the subsiding turmoil over the Crimea region. While these are short term factors that may be affecting gold, there are still practical reasons to own precious metals according the World Gold Council. Here is a look at a few of the factors behind gold’s recent lull and why it’s important to focus on the big picture.
U.S. Economic Data and Gold
The most recent set of economic growth figures were released this week. U.S. jobless claims have fallen to a four-month low and it seems that the U.S. economy is slowly, but surely making a comeback. This naturally has investors worried that the newly appointed chair of the Federal Reserve – Janet Yellen will pull back further on the economic stimulus program in place.
Gold tends to take a hit when positive news about economic growth is released. Gold is traditionally a safe haven investment and quick dips in the price of gold are normal when upbeat news about the economy is released. Furthermore, the present economic stimulus program is printing billions of dollars each month. This positive data only reinforces the idea that the economy is growing and this stimulus program may not be needed for much longer. As less and less money is printed, worries of inflation subside – ultimately causing gold investors to purchase less of the yellow metal as a safe haven asset. Therefore, with each upbeat economic report that is released, gold tends to take small steps backward.
Crimea and Gold
It looks as if things are finally cooling down between Ukraine and Russia. Tension between Ukraine and Russia continued to simmer after Ukraine announced the evacuation of its troops from Crimea, essentially yielding the region to Russian forces. This is certainly more benign news than recent headlines that hinted towards invasion.
Turmoil over Crimea drove gold prices during the past two weeks. As the situation escalated investors saw a decline in the stock market. Since gold is a proven safe haven from the fluctuating nature of the stock market, investors sought to buy gold over the past couple weeks – increasing demand, which naturally drove prices up.
Now that the issues overseas have become less troublesome, there is less of a surge to buy gold. Demand for the yellow metal has subsided and now gold has returned closer to levels of where it was before this geo-political storm occurred.
Gold and the Big Picture
While there has been a recent downturn in the yellow metal, gold is still up around 6% for the year. Furthermore, many experts believe gold has found a solid base at the $1,300 per ounce mark, which again is closer to where gold was before the turmoil over Crimea began.
It’s also important to understand that just because one area of the world may be facing issues, doesn’t mean that other markets across the globe may have ongoing problems as well.
“Given recent market volatility, it is essential for investors to hedge their exposure. In our view, gold’s role as a portfolio hedge is critical,” stated Juan Carlos Artigas, director of investment research at the World Gold Council “The world is much more intertwined and the risk of emerging-market contagion has the potential to impact portfolios that invest solely in developed economies.”
Gold investors would be wise to keep these tips in mind as the rest of 2014 unfolds. Think gold for the long term. Gold has always had a unique and important part of any investor’s portfolio. It helps to balance an investor’s overall portfolio by protecting their wealth from upbeat economic data, any sudden dips in the stock market or political turmoil.
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