Gold: price falls, popularity rises - August 26, 2018

Gold: price falls, popularity rises

Gold might have lost some of the momentum it had at the beginning of the year, but price isn’t everything in this case. Chinese and Russian central banks are buying it endlessly. JP Morgan is also spending huge amounts of money on it. What is the reason? Many believe that gold can have a higher importance in the future than it has now.

Something important is happening to gold (and silver) lately. According to Bloomberg, ever since March 2015 Russia’s central bank is buying it in every single month. It’s not only them: China is also buying it at a high rate. According to World Gold Council’s data, the two countries multiplied their reserves by 4.5 since 2000. They are still far from the biggest reserves globally, but they are strongly investing in gold.

Official Global Reserves

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Great kickoff for the year

Gold indeed had a great start in 2018. From the end of 2017 until spring this year, its price was on a constant rise (with some fluctuations). From just above $1200 it went up to $1350-1360 in a relatively short time.

Gold Futures Dec 2017 - Apr2018

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This was not surprising, though. From the beginning of the year through spring gold historically has its strong period. What’s more, a correction on stock markets also helped the precious metal. Gold is considered a safe haven at time of corrections as it has the ability of “paying” a return at the rate of inflation.

Now slowing down but…

Stock markets didn’t stay weak for long, though. Their turnaround combined with the historic downtrend in precious metals’ market during the second period of the year led to a fall in gold prices. Since spring, prices went back to their previous states.

Gold Future prices since December 2017

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What’s more, prices now are around states last seen at the beginning of 2017. We can also expect them to go a bit further down, to around $1100.

…an uptrend is expected

But gold’s shining is far from over. One of the most important truth of investments is to “follow smart-money” and that’s flooding into gold. As we mentioned before, Russia and China are both pouring money into gold. (Maybe to ease their dependence on the US dollar. Also, if the dollar starts to weaken, gold will have a great time.)

JP Morgan is also betting big on precious metals. In June (against the fall) they forecasted prices around $1390 for Q3 and expecting gold to climb above $1400 the next year. They are also buying huge amount of silver, which moves around with its big brother.

This means that if in the near future we see gold hitting $1100, it’s not a time to worry or to sell, but a cue to buy. Big market participants are betting huge on gold, and this might be a good time to follow the smart-money again.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.