It’s been reported that the gold price surge that took place last spring and summer has fizzled somewhat this time around. This is not because investors have lost confidence in the value of the precious metal, but it is because they are looking to diversify their financial portfolio by adding some more assets.
The gold price surge of last year was due to the Federal Reserve’s aggressive quantitative easing efforts. With QE, the Federal Reserve is flooding the market with money from its bond purchases. The hope is that this will cause more investors to turn to investing in the precious metal.
In fact, a lot of people believe that the gold price spike and the resulting boom and bust cycle we saw last year were a precursor to the current economic recession. The Federal Reserve is pumping too much money into the economy and the result is that there is too much money in the system and it can’t handle it.
The result was a big fall in the stock market and an economic slowdown. The Federal Reserve then tried to bail out the banks by buying billions in long term bonds, but those efforts were unsuccessful.
Now, the Federal Reserve is expected to start raising rates for the first time since 2020 when the gold price rise occurred. That is a pretty big signal for gold investors to get out there and start buying some gold.
Many people have been scared off by the news that the price of gold will rise if the Federal Reserve raises rates. But, there are actually a number of reasons why the rise in the price of gold could be short lived.
Central Banks doesn’t normally raise interest rates on their own. So, this could be an attempt by the Fed to get investors to turn their attention to its actions.
And, if the Federal Reserve is successful in stimulating the economy with its bond purchase program, it could cause a rise in oil prices as well as companies take advantage of the higher profits in their crude. production.
However, there is still time for the price surge to fade. Just because the Federal Reserve raised rates in December doesn’t mean that the gold price surge is over.
As oil prices rise, the real estate market will take a hit. If there is not a good response from the investors who have been frightened away by the recent news about rates, the price of gold could continue to rise.
When the market is in recession, the gold price will fall. But, if it stays in recovery, the price of gold could increase and cause a bubble in the future.
Central Banks will never force the market into any bubble formation. So, they can only stimulate the economy by purchasing all the gold that they can afford to buy. They can only do this so long as the prices of the precious metal remain low.
So, investors should expect the gold price to continue to rise if the Federal Reserve continues its stimulus drive. If rates are lowered or the price of gold is cut too low, then the price of gold will fall.
And, if the prices of gold drop too low, then central banks will cut off the supply of the precious metal. Then, it will become harder for central banks to make any profit.
This means that central banks could start printing more money and buy up more gold if the price of gold starts to rise again. In this scenario, you would expect the central banks to start buying up more than just one gold ounce of gold.
If central banks do make profits, they will then start selling the gold for some other commodity. so it’s best to invest in the future and hope that the central banks will hold their ground.