As we enter the final month of 2015, gold is in an unsteady position. It had been on an ever increasing rise, but it has taken several hits over the course of the year and it is now just a fraction away from hitting its lowest point in 6 years. There is no one factor causing this, and there have been many events in 2015 that have attributed to it.
The following events have triggered both increases and decreases in the price of gold in the final half of 2015.
As everyone who invests in gold understands, global events can have both a positive and negative effect on the price of all precious metals, and it seems that the terrorist attacks in France had a slightly positive effect on the value of this particular precious metal. The world is worrying that Islamic State are getting bigger and bolder, and that their rise will cause global markets to plummet, which in turn will cause buyers to rush to commodities with an inherent value. And they are right, in a way, but IS are still very much a terrorist organization. They certainly have power and influence, but they are not an all-powerful country, and they will surely not have as much of a detrimental effect the future of the first world as they hope.
When the markets opened for trading on Monday, following Friday’s atrocities, gold increased by 1.3%, but by Tuesday it had lost those gains, and before the week was out it had slid even further.
Greek and Chinese Woes
As things began to worsen in Greece, the gold markets began to climb. There was a huge demand for this commodity, both from Greek investors and from global investors. After the crises took a backseat, moving away from the front pages, there were worries in China. In a matter of weeks, the value of all of their major companies was dramatically cut short. The stock market took a huge hit and the government were forced to dip into their own pocket in order to alleviate the chaos.
Many uninformed investors were predicting that this would cause another sharp rise in the price of gold, but in actuality it went the other way, causing one of the worst declines in gold’s spot price for several years. To understand why this happened you need to understand the gold market when it is stable. Yes, it is true that an economic crash in a major country causes people to rush out and to buy gold, but in a stable environment much of the gold that is sold goes to Chinese buyers and Chinese companies. The Chinese buy more of the yellow stuff than anyone else, with huge markets in bullion, numismatics and in precious metal jewelry. If you take away their investments, their expendable income, and you add the worry of a collapsing economy, then you have legions of buyers who previously propped up the gold markets, and suddenly want nothing to do with the metal.
One of the main reasons gold has struggled this year is because the US dollar has not. Gold is backed against dollars, so whenever the value of the dollar increases then gold drops, and vice versa. This year has been very strong for the US dollar, which means that gold has struggled even away from the events discussed above.
The US economy has been getting stronger under Obama’s second term. This also has a knock-on effect, because when the dollar is strong and gold is weak, then investors turn to the green stuff as a way of securing their money, staying away from gold. It is good news for the United States and by association it is also good news for many other major economies, but it seems to be bad news for gold investors, at least for now.