Among all the precious metals, gold remains outstandingly popular as an investment option. Gold derives its precious status from its rarity and unique chemical and physical characteristics.

Gold is often bought to diversify risks using derivatives and future contracts. Only a few metals have had a significant role in the human history as gold. Although we may not know exactly when the human fascination with gold started, flakes of gold have been obtained from Paleolithic caves that date back to 40,000 B.C.. The ancient historical texts throughout the world have also mentioned gold, suggesting that it was treasured world over.

The United State Congress, in 1972 adopted gold and silver standards, a decision that changed the modern history of gold. This decision established gold and silver as legal tenders in the US and had a fixed price in terms of the USD. At the time, 15 parts of silver were exchanged for one part of Gold. However, the civil war of 1862 pushed the country to declare the paper money as the legal tender since gold and silver would not sufficiently write-off its debts.

The 1870s saw a number of gold rushes. People rushed to various parts of the world hoping to get some nuggets that would make them “instant millionaires.” A decade later, in 1970, the Vietnam War caused the gold standard to collapse. Before its collapse, gold was fixed at $35/ounce.

Many gold charts started in 1970. Until 1976, attempts were made to salvage the gold standards. However, gold’s price skyrocketed to over $800 in 1980, a value that could not be sustained by any currency.

The past two decades have seen dramatic changes in the value of gold. In 1999, gold dropped to a landmark $251.70 after central banks around the world were speculated to be reducing their gold reserves. Gold mining companies were also selling the precious metal in forward markets.

During the recession in late 2000, many people rushed to buy gold as a store of wealth. The geopolitical tensions of 2003 to 2008 kept elevating the price of gold. Further, the global economic price rise of 2008 continued to fuel the spike. In August 2011, gold hit an all time high of almost $2000, marking the second major spike after 1980. In recent years though, it’s price as remained rather stable, with an ounce trading at $1,200 to $1400.

As of 2014, there was no recorded usage of the gold standard by any country; hence, no currency was pegged on the value of gold. However, DinarDirham has introduced a digital currency (DinarCoin) pegged to the worldwide gold spot price. This enables users to trade, invest and make payments using a non-volatile currency linked to physical gold. At the time of this writing, 29th December 2017, the price per ounce of gold stood at $1292.80, making a DinarCoin exchange at 176.93.

The future of gold prices

According to Price Analysis, gold price remains bullish in the foreseeable future. For long enough, gold has established itself in the bull side of the market and attracted both short-term and long-term investors. However, the primary and psychological factors that influence the price of gold are fundamentally unidentified or ignored.

Let’s have a look at some factors that have a potential effect on gold prices in the near future;

1. Inflation

In the 1970s, gold prices rose 17 folds owing to the record inflation levels. The next 20 years saw the inflation rates ease, although it continues to reduce the purchasing power of cash. By 2000, the dollar’s value had halved.

2. Monetary policy

This is possibly one of the factors with the biggest influence on gold’s prices. Monetary policies are controlled by the Federal Reserve. Interest rates influence gold prices due to the “opportunity cost” factor. Gold markets can also be easily moved by Federal Reserve commentary

3. Stock markets

Just less than half of the time, gold prices move in the opposite direction to the stock market-just as interest rates. Gold and stock markets are negatively linked. When traders foresee a risk in the rock market, they go into a “Defense mode,” and will likely invest in gold which is rather stable. This explains the negative correlation.

4. Economic data

Economic data is also a major driver of gold prices. Some economic data of interest include; wage data, job reports, GDP growth, and manufacturing data. When economic data points a strong economy, the prices of gold always dwindle.

5. Demand and supply

Although often disregarded, the simple demand and supply economics have a significant impact on the price of gold. In 2006, the demand for gold overly constrained supply, leading to a steady rise in price.

Taking a long-term look at Gold, you would conclude that the market presents an opportunity for interested investors to board the train which will possibly offer a rally that is likely to start off in early 2018. We expect that the price per ounce of gold to hit $1,400 and above, while the DinarCoin will trade at around $191.7. This year has been marred by little to no “Brexit”-like happenings. This is one reason why we didn’t see any major forward spikes. The Catalan crisis, for example, is being watched anxiously by other European countries with secessionist movements in Europe. The success of Catalans could disarray countries with “forced marriages” and inspire similar autonomist movements. Hence, in the event of increased geopolitical turmoil, the gold price is set to rise significantly. Other factors contributing to this move include low interest rates, pick up on physical buying and a weak dollar.

“We’ve been writing in our letter, going back about six weeks, that we’ve been forecasting $1,350. That’s our current forecast, but I think the market is probably going to go beyond that and go to $1,400-plus,” said Bill O’Neill, one of the principals with LOGIC Advisors.

There are many pointers showing that gold will break out of the $1300 in the offing. We’re approaching a time in the year when Asia’s demand for gold is expected to gather pace ahead of the region’s key gold-buying holidays. Also, the current trend of prices is historically implying an impending increase in price that should begin in early 2018. Nonetheless, there is no guarantee of a breakout move in the future. Still, gold bugs peddle uncertainty, and slapdash investors can lose their money.


References

http://www.sciencefocus.com/qa/why-gold-rare

https://sciengsustainability.blogspot.co.ke/2013/05/why-is-gold-so-valuable.html

https://bebusinessed.com/history/the-history-of-gold/

https://www.apmex.com/education/history/what-is-the-gold-standard-in-us-history

http://www.businessinsider.com/history-of-us-gold-standard-2015-12?IR=T

https://www.theguardian.com/business/2010/sep/17/gold-price-timeline

http://www.telegraph.co.uk/finance/commodities/8772196/2000-an-ounce-for-gold-is-now-within-sight.html

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/11014933/The-seven-drivers-of-the-gold-price.html

http://marketrealist.com/2015/12/golds-correlation-equity-markets/

http://news.gold-eagle.com/article/gold-rally-start-something-big/843

http://www.kitco.com/news/2017-08-29/With-Gold-Rallying-Analyst-Say-1-400-Is-Its-Next-Stop.html

https://www.investing.com/news/commodities-news/gold-prices-up-in-asia-ahead-of-u.s.-holiday-501823

https://www.trustablegold.com/2018-gold-price-forecasts/

Leave a comment