Investing in a Declining Market
Investing in a Declining Market: Gold is going to shine in 2016
The return to a multiyear average of the financial markets during 2016 forms a hope for the resumption of some other trends. In particular, commodities and gold have to feel the bottom, and, therefore, it may be a good time to invest in these assets. Unfortunately, this does not negate the attitude that the bottom is yet to be achieved. And before recovering the situation it is going to become even somewhat worse.
Investment in gold is perhaps one of the most reliable long-term investment instruments. If you look at the chart, gold rises in price with the unstable economic situation and vice versa. Isn’t it that perfect investing in declining market? Over the last 10 years the price of gold has increased 6, 8 times! Gold supplies are limited and this is the fact, which increases its value. According to some analysts, gold may become a good alternative to paper money in the future.
But it is also necessary to take into account the fact that gold is able to reclaim the interest of investors only in case of consistent reversal of global inflation in the direction of acceleration. And this is seemed possible only after 3-6 months period later on the stabilization of oil prices. Agreeing with the consensus forecast that oil will reach bottom in the first quarter, the third may be referred to the rebound in gold.
Up to this point the quotations of this precious metal can lose more than 15%. Also the price may lower closer to 900 dollars per ounce from the current 1075. The great number of other trends could also help in this reduction.
China and India together account for about 40% of the jewelry market. And the slowdown in China raises doubts that in the coming holiday period, consumer demand for jewellery will be abnormally high. Seasonal trends also suggest that after January-February festivals, the market is followed by a lull, which suppresses the price. But if it would be superimposed by the weakness of oil and by the resumption of the growth trend of the dollar, the gold is nothing left, but to give the mark of 1000 per ounce, which is an important psychological barrier.
Investing in a Declining Market: Conclusion and Prediction
Nevertheless, longer-term prospects of the precious metal seem very optimistic. There are absolutely no doubts that the current monetary policy of the Central banks of the largest economies is abnormally stimulating. While these countries recover from the financial crisis, monetary growth is not fuelling inflation, but soon (by the end of the next year) the internal pressure of the labor market will force this trend to reverse.
But still there is little chance that the Central Bank would raise interest rates faster than inflation became recovered. So the coming year may be seen as the year of reversal of gold, but before that it still needs to feel the bottom at levels twice lower peak, i.e. at the level of $ 900-950 per ounce.