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Will the Gold Price Go Up Over Time?


The gold price is one of the most commonly followed investment metrics.

All over the world, you will notice that gold forms an important investment option.

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Often, it is also referred to as haven investment

It offers the much-needed diversification to your portfolio.

Gold in many cases is also a hedge against inflation.

Traditionally, gold has yielded higher returns over any time frame.

So the question is how is the gold price poised for now?

The Gold Price Since 1974The gold price that way is determined by many factors.

You have to take into consideration many factors and take a constructive view.

Just like stocks, currencies and all other assets, the gold price is determined by several factors.

Both economic and geopolitical considerations have a bearing on the gold price.

While individual price forecast can differ, understanding the basic trend is important.

That is what determines how prices are likely to fare going forward.

Moreover, it will also help you gauge whether it makes sense in a certain asset.

If you follow that trend, the gold price is seen scaling fresh highs.

The prices may escalate to anywhere between $1400-2000 in the next few years.

The broad trend seems to indicate that the various factors support a reasonable price rise.

In fact, London Bullion Market Association anticipates a huge swing in prices going forward.

Between 2018 and 2019, the gold price may spike up to even multi-year highs.

Now there are several factors that are supporting this prediction.

While the actual extent of the upmove is anyone’s guess, the consensus is it is moving higher.

Analysts feel that it is a function of multiple factors that are converging at the moment.

So here is a quick look at the factors that support a rise in gold price.

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Real US Interest Rates

The real US interest rates perhaps have one of the greatest bearings on the gold price.

Gold has traditionally generated positive returns when the stock markets have been lower.

Now the negative returns in stock markets are very closely linked to interest rate movement.

But by this, I am referring to the real interest rates.

This is interest rates minus inflation.

The kind of answers the question, why and how interest rates affect the gold price?

Let us understand that gold like any other investment opportunity is operated by the demand-supply matrix.

In a rising interest rate scenario, there is an always an absolute need to rebalance portfolios.

Historically between 1973-1974, Gold jumped 150% while S&P 500 dropped 40% in the same period.

This was also a period where interest rates were on the rise.

When higher interest rates muted stock demand, gold comes across as an alternative investment destination.

This is what impacts the overall gold prices to a large extent.

So it establishes our previous point of view that gold price is a function of demand and supply.

Interest rates play a significant role in impacting the broad demand.

It also affects the overall money supply in the market.

All of these together work towards moderating the market moves.

This is what impacts the final demand and hence the supply.

Interest rates also play a role in the overall inflation scenario.

Interest rates have remained low for an extended period.

According to recent predictions, the US Fed is likely to raise the interest rate.

This is what is expected to spur the demand for gold.

That, in many ways, is likely to raise the gold price to a significant extent.

But gold is a rather complex animal, and this is not the only factor.

Higher Government Bond Yields May Lead to Higher Gold Price

The Government bond yield rates also impact gold rates in a significant manner.

Globally if you notice, bond yields are on the way up.

There are also reports the Chinese authorities are reevaluating their US Treasuries holding.

Moreover, higher yields also indicate lower bond rates.

Many believe that the long-term bull market in bonds is almost over.

Bond prices have, in fact, slipped to one-year low.

When you compare even from 2016 highs, there is a significant drop in rates.

So in terms of pricing signals, a higher yield also points to a rise in the price of safe haven assets.

That suggests times for higher rates and inflation too.

Gold is often seen as a hedge against inflation.

So a higher inflation period may actually benefit gold demand and the prices thereon.

Almost invariably people are more prone to invest in gold during these periods.

That is what is expected to push up precious metal prices globally.

Apart from bonds, gold is another of the most popular safe investment destinations.

This is pointedly a key trigger to consider when you are undertaking gold price prediction.

You must understand that flight to safety is a natural human instinct.

Even in terms of investment, this fact holds true.

But if the bonds do not offer that safety net, gold is the next option.

This is why the recent high in yield rates is such an important signal.

It invariably highlights a worrying trend in bond investments.

In many ways, that is what may push up gold price going forward is.

So, this is why a higher bond yield now augurs well for gold investments in future.

It goes on to create a meaningful base for a significant rise in prices.

Bearish Trends on US Dollar Index

The US Dollar rates and gold prices are inter-related.

The prices of both these assets are inter-related.

Needless to mention that both these factors are a function of demand and supply.

In many ways, the global economy and geopolitical conditions impact the movement of both these assets.

This is why it becomes so important to track the US Dollar Index movement to assess the price rise.

The US Dollar Index is a basket of 6 currencies against the dollar.

Technical levels on the Dollar Index charts indicate that it is set for lower lows going forward.

There are also indications that it is set for longer-term bearish stance.

The current leg down in prices may continue in stages.

In fact, a dollar is set to see another round of weak pricing.

That, in itself, creates a potential prospect for the yellow metal to move ahead.

A weak dollar scenario inevitably impacts the overall price movement to a large extent.

That creates a convincing base for gold prices going up shortly.

That alone sets up a base for $1400 and above going forward.

Thus gold is set to benefit from a weak dollar scenario for the rest of 2018.

In many ways, that is likely to impact the overall supply-demand scenario to a large extent.

It will enable gold prices to move up.

In fact, this is one of the most convincing factors supporting a rise in gold prices.

It is set to spur higher demand for gold too for a longer period.

Moreover, the currency and commodity price swings operate over a longer time period.

This, in many ways, creates a convincing ground for stable upswing in gold price.

So you can easily brace up for sustained price appreciation.

S&P 500 Signal Certain Bearish Trends

Apart from the fundamental factors, there are some key technical indicators too.

It is important to pay attention to these technical signals because of the price patterns they suggest.

Technical charts signal future prices on the basis of past price movement.

As a result, it takes into account historical trends to create a meaningful course for the future.

This is where the charts of the S&P 500 is worth a bit of attention.

The markets are in the throes of a strong bull market.

Stock indices are scaling new highs practically every day.

But the technical charts of S&P 500, point to a very different story.

They seem to indicate that the S&P 500 may be headed for difficult times ahead.

The current levels indicate a potential beginning of a bearish trend.

Over the longer term, the S&P 500 is perhaps setting up for a decided downward spiral.

The RSI also touched a new high in December 2017 and moved back.

This too seems to be supporting the claim that the S&P 500 may also see some retracement in value.

All of this can point to only one fact.

The S&P 500 may top out in the near term.

So, what does that mean for prices going forward?

Well, it means increasingly people will move to greener pastures.

Invariably, there will be times when people may look for more stable gains.

This is exactly how Gold price may benefit in the near-term.

It is likely to attract the attention of investors looking to reallocate funds.

That will create a meaningful demand pocket.

This is what will help in gold prices going up significantly for rest of 2018.

The presumption is that this upmove may continue for as long as 2020 as per key technical indicators.

Geopolitical Factors

Geopolitical factors have an undeniable bearing on commodity prices.

Be it gold or crude; even the smallest developments can affect price movement.

Flight to safety remains the single biggest motivation in this case.

So there are some very worrying pressure points globally.

These are likely to raise the forecast for gold price going forward.

One of the most worrying situations is that of North Korea.

The US-North Korea equation is extremely important.

Moreover, the kind of bearing that it has on world security is a huge worry.

This is what is most likely to push up gold price.

It is seen as a major risk to global stability.

This is likely to encourage investors to increase their investment in gold.

It is expected to create a potentially volatile environment for stock market prices.

This is likely to create a meaningful base for significantly higher allocation in gold.

This is only one part of the global scenario.

The Middle-east too is another questionable pocket in terms of global stability.

It continues to give rise to many terrorist threats globally.

In fact, if you see, the whole region is simmering with internal disturbances.

The violence and its repercussions do not seem to be ending any time soon.

That, in many ways, affects the overall demand-supply matrix for gold.

In other words, that creates a scope for meaningful appreciation in gold rates.

If you track the gold price globally also, these geopolitical unrest have a distinct bearing on portfolio allocation.

Whenever people are looking to invest for the longer term, there will be a sizeable demand for gold.

This demand for gold will also help push up prices higher.

As a result, the expectation is that gold price is set to move higher going forward.

Demand from India, China

The demand for physical gold also plays a role in determining gold price.

Demand from countries with high gold consumption is crucial.

Traditionally, the demand for physical gold is significantly high across Asia.

India and China are typically two of the largest consumers of physical gold in India.

India, in fact, is the second largest consumer of gold in the world.

Here demand is traditionally impacted by religious festivals.

So through the year, there are many religious festivals that result in gold buying.

Higher gold demand also results in uptick in prices.

Therefore, it goes without saying that demand in these markets spikes up prices globally.

Internally, gold prices have rallied to 16-month highs in India.

Therefore, this indicates that the global gold price will also reflect the sentiment

It is only obvious that there will be a distinct rise in prices going forward.

But India is not alone in this rally.

Gold price in Singapore and China too are on an upward trajectory.

As a result, premiums to gold price have also inched higher.

So that means, you can also expect these factors to help global gold price.

So it is obvious that gold price is likely to go up in future.

Buying by Central Bank

As you may have noticed that the demand-supply matrix is the single biggest impacting price movement.

So, in this case, it is not just mere retail buying by individual customers.

You must keep in mind that central banks are active buyers of gold.

In recent times, there has been a distinct rise in gold buying by central banks.

If the indicators are true, there is no signal indicating a halt in this hectic buying either.

That only signal one thing.

The gold price is set to move up from current levels.

Technical Indicators for Gold Charts

Now it is also important to analyze the gold chart as well.

In many ways, the price signals that they point to can also give meaningful direction to future prices.

The technical experts believe that the gold price is squeezing into a tight range on a monthly basis.

This only points to one basic factor globally.

It goes on to indicate that a global breakout in gold prices is imminent.

A long-term consolidation of the prices also points to a decided breakout potential.

Now if there is a break put at this juncture, the chances are there will be a new high going forward.

That is one of the biggest factors indicating gold price is set to move higher over long-term.

Role of Speculators

Last but not the least, you cannot undermine the role of speculators in deciding the gold price.

Interest in buying gold has risen significantly compared to past two-three years.

This surely points to a higher rise in gold price in this period.

The open interest in the gold position is also very expansive.

That, in itself, is a big indicator that the yellow metal is set to breach fresh highs.

Therefore, the gold price is surely set to chart out new highs.

Conclusion

Apart from that, if you take into consideration the trading volume on Comex, you get a fair idea of demand.

Gold trading volumes are scaling absolutely new highs at the moment.

There are some alarming signs of limited new gold supply from mines.

That means supply may not be able to match the projected demand.

That too indicates that the overall outlook for gold price is up, up and away.

Though the jury is out on whether gold is going to reach $1400 or $1600 levels, new highs are for sure.

So if you are looking for constructive long-term gains, you are getting positive signs from gold price.

The gold price is set to go up over the next few years.

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