Gold has reached $1,400 for the first time in years — and some believe that it’s likely to touch $1,550.
Economic pressures have lead to gold increasing in price quickly, as investors look for alternative strategies with less volatility and risk. Gold has long been a staple of low risk portfolios, and a method of diversifying an existing portfolio.
Here’s what you need to know about the current status of gold as an investment.
Gold Rides High on Expected US Federal Interest Cuts
Early in the week, it was expected that the Federal Reserve would be cutting its interest rates. Lower interest rates are generally a positive for businesses, as they find lending more affordable. However, it’s a negative overall economic indicator. Interest rates are only cut when the economy needs stimulus. When interest rates are lowered, the dollar tends to go down — and when the dollar goes down, gold has a tendency to rise.
Though the stock market has continued to outperform expectations, analysts are becoming increasingly worried that a crash is on the way. In fact, analysts have been predicting a crash for the majority of 2019. The now common volatility of the market has only encouraged this line of thought, as the stock market has undergone a number of small crashes and recoveries this year.
Thus, in expectation of a Fed rate cut announcement, many have decided to invest in gold. Gold has historically provided long-term, stable growth, as well as a hedge against both inflation and economic instability.
A Lack of Interest Rate Cuts Could Potentially Cut Gold Prices
This week, the Federal Reserve voted on interest rate cuts. And though analysts had believed that the federal government would be cutting interest rates this month, they instead voted overwhelmingly to keep the current interest rates. When the Fed declined the rate cuts on Tuesday, gold prices did fall — but not enough to substantially eliminate the prior gains.
Gold prices are currently linked to news regarding these new interest rate proposals. However, the government convenes on a regular basis to discuss these interest rate decisions, and it isn’t the only value in gold.
The Fed uses a number of factors to determine when interest rates must be increased and decreased. In times of uncertainty and volatility, rates are generally decreased — but decreasing rates also increases business and consumer debt. Presently, with business and consumer debt high, the Fed must balance both debts and economic stability.
The Value of Gold as an Investment
Gold is considered to be a valuable addition to most portfolios. It increases in value when the dollar is weak, hedges against inflation, and has been a valuable commodity for nearly as long as civilization has existed. Gold isn’t just a luxury item; it’s also an extremely useful resource, primarily when it comes to microcircuitry and electronics.
Since gold is valuable everywhere, it can be used to control against a weak local or government economy. Even when a local economy is doing poorly, gold will remain strong on a global scale. Gold is also finite: there’s only a certain amount of gold on Earth, which means that it is by its nature rare and valuable. Demand for gold also continues to grow.
If and when interest rates are lowered by the Fed, it’s very likely that gold will rise even further — this is why many are predicting that gold might reach $1,550 or even over $2,000. Regardless of the current economic and political climate, gold has always been seen as a good investment. While most shouldn’t maintain a portfolio solely of precious metals, gold is one of the best ways to diversify an existing portfolio, especially for those who believe the economic climate may be shifting.
Many believe that the Fed will still cut the interest rate by the end of the year, but the Fed has indicated that one or two interest cuts are likely coming in 2020 instead. However, the Federal Reserve has left the door open for interest rate cuts in 2019, should the economic condition not improve. Many analysts are still betting that an interest rate cut could be announced as early as July of 2019.
Regards,
Ethan Warrick
Editor
Wealth Authority
