Gold prices have surged roughly 18% since the beginning of the year as fears of a U.S. recession and weak global economic indicators deepen. While most Wall Street analysts think the idea of the U.S. slipping into another recession is farfetched, the reliance on current gold prices suggests otherwise. The fact of the matter is, investors have reason to be concerned. Bleak economic data from the U.S. and around the world points to gold prices climbing even higher in 2016.
3 Big Reasons Why Gold Will Climb Even Higher in 2016
Gold has been on a big run since the start of 2016, rising to around $1,061 per ounce. It is now trading at a 15-month high, and precious metal bears think it will run out of steam and either continue to trade sideways in a tight range or give up ground. But there are a number of reasons why gold will continue to trend higher in 2016.
Federal Reserve Chair Janet Yellen announced in April that the Fed would leave interest rates unchanged in the range of 0.25% to 0.5%. The Fed said the slowing U.S. economy and weak consumer spending were the main reasons behind the ongoing pessimism.1 In the first quarter, U.S. GDP advanced just 0.5%.2 A weak U.S. economy bodes well for gold prices as investors seek to protect their wealth.
It’s not just the U.S. that’s struggling. Another factor fuelling ongoing interest in gold is the lack of growth in the rest of the world. In the first quarter, China’s GDP decreased to its slowest pace in seven years—this after the nation reported the weakest GDP in a quarter century in 2015.3 Japan, the third-largest economy in the world (behind the U.S. and China), is maintaining negative interest rates and future easing is not out of the question.4
Lastly, the U.S. dollar continues to underperform. The U.S. dollar index is down roughly four percent year to date near $0.95. This isn’t a total surprise when you consider the state of the U.S. economy. The greenback would be down even further if it wasn’t for the fact that the rest of the world is doing even worse.
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The sharp rise in precious metal prices has sparked renewed interest in gold. This includes investing in physical gold in the form of gold bars or gold coins, gold mining stocks, and exchange traded funds.
But investing in precious metals like gold comes with risk, just like any investing opportunity. While some gold bugs see gold as a long-term investment, others see it as a short-term opportunity.
Whether you’re long or short on gold, the licensed professionals at Learn-To-Trade.com will reveal all the nuances of investing in precious metals like gold, silver, and platinum. That includes helping you understand what influences the price of gold.
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- “Federal Reserve Statement,” Federal Reserve web site, April 27, 2016; https://www.federalreserve.gov/monetarypolicy/files/monetary20160427a1.pdf.
- “National Income and Product Accounts Gross Domestic Product: First Quarter 2016 (Advance Estimate),” April 28, 2016; Bureau of Economic Analysis web site; https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
- “China’s first-quarter GDP growth likely slowed to a seven-year low,” marketwatch.com, April 13, 2016; https://www.marketwatch.com/story/chinas-first-quarter-gdp-growth-likely-slowed-to-a-seven-year-low-2016-04-12.
- “For Japanese Government Bonds, Negative Rates Mean Positive Volatility,” Wall Street Journal web site, April 29, 2016; https://blogs.wsj.com/moneybeat/2016/04/29/for-japanese-government-bonds-negative-rates-mean-positive-volatility/.
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