Is Gold Still a Safe Investment Option?

Gold has long been a very sought after precious metal. So sought after in fact that throughout history, it has been used as a currency, as jewelry, and most importantly these days, as a safe haven investment. However, for quite a while now, the value of gold has been declining; and these days investors and speculators are concerned about the value of the precious metal. The big question surrounding gold these days – is gold still a safe investment option?  Well, in my opinion, not only is it safe, it’s likely to become incredibly profitable for the more short-term speculator relatively soon. Today, we’ll break down the factors that could cause gold to rally in late 2015 and early 2016.

Understanding Gold as an Investment

To answer the question: is gold still a safe investment option, let’s start by getting into why I think gold will rally toward the end of the year and the beginning of next year.  But before that, I think that it’s important to go over why gold is such a strong investment in the first place and how it works. Gold, unlike other commodities isn’t a commodity who’s price moves based on consumer demand. Although, consumer demand is a factor in price movements, in the case of gold, it’s more of a secondary factor. The primary factor with regard to gold price movements is the condition of the market. That’s because gold is a safe haven investment.

This means that when investors don’t think there’s much money to be made in the market, or they think that stocks are a dangerous place to invest, one of the first places they look is gold. During these times, so many investors are buying gold that the demand for the precious metal skyrockets and supply plummets. As a result, the value of gold climbs.  This is why I always recommend that investors include at least a small portion of their investment allocation to be put towards precious metals such as gold.  It helps to dampen effects market corrections can have on your portfolio in the short term!

Chart From anyoption blog

Why I Believe That Gold Is Likely To Rally Toward Then End of 2015 and Beginning Of 2016

As mentioned above, the value of gold is heavily dependent on market conditions. When market conditions are positive, the value declines and when conditions are negative, the value increases. This explains why we’ve seen long term declines in the value of the precious metal. However, it also explains why we’re likely to see the value of gold increase in the near term. The bottom line is that there are several factors that currently threaten the stability of United States financial markets. They include, but are not limited to…

• Strong US Dollar – First off, the United States dollar has outperformed analyst expectations for quite some time now; and while a strong currency may appear to be a good thing at first glance, it does have a dark side. Because of the strong dollar, United States products are more expensive in other countries. As a result, exports simply aren’t adding up to be what they should be. This is likely to become more apparent as earnings season commences; leading to declines in the market.
• Federal Reserve Interest Rate – The Federal Reserve interest rate has been a big topic of conversation in the finance space for quite some time now. The reality is that the historically low interest rate put in place by the Federal Reserve in the depths of the 2008 and 2009 financial crisis has aided in the market’s ability to grow for as long as it has. However, the Federal Reserve plans to increase interest rates toward the end of 2015. This will likely cause a correction in the market and send investors running to their safe havens.
• Economic Turmoil In Europe – We’ve all heard about the Greek debt crisis and the economic impact the crisis could have on Europe as a whole. What’s important to remember here is that the crisis has the potential to affect markets around the world as Europe is one of the biggest economies in the world. So, this is also likely to cause pain in United States markets and send the value of gold up.
• Low Oil Prices – Finally, oil prices play a major role in the health of economies and financial markets around the world; and right now, the price of oil is incredibly low. To make matters worse with the commodity, the United States has reached a deal with Iran. This will effectively lift the sanctions on Iran and flood the oil market with more supply; leading to a further glut and causing a decline in the value of oil. This is likely to contribute to the market turmoil we’re headed to down the road.

When all of this is tied together, it’s hard to imagine that financial markets in the United States will keep performing at such an astonishing pace as they have for the past six years. With that said, I’m speculating that we are likely to see declines in the market as the value of gold rallies.

Is Gold Still a Safe Investment Option – What Do You Think?

I recommend that everyone have a small investment in precious metals such as gold just as a small hedge against a doomsday type of scenario.  While the likelihood of occurrence is extremely low, you never know  As I mentioned above, having a small amount of gold in your asset allocation also helps to smooth out any short term corrections that the stock market may see.

If you are “investing” in gold for the short term, you really are performing speculation more so than investing.  While I normally stick to bread and butter investing for the long-term and recommend this type of method to everyone, it is fun to speculate from time-to-time on what will happen next in various markets :-).  Well, do you think that the US markets are headed for declines? What affect do you think this is likely to have on gold? Is gold still a safe investment option? Let us know your opinions in the comments below!

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