According to CNN, early on in the year gold bugs were seemingly a happy lot of investors due to the 6 % price jump of gold and gold related investments which based on most financial analysts were definitely the best performing assets at the beginning of 2016. The driving factors behind these substantial price movements were attributed to a variety of factors which according to some analysts were due to falling oil prices while others attributed the phenomenon to the strength of the dollar or even the slow growth in China’s.
However, despite the jump, the fact remains that even an attempt to sell these assets by investors who have been holding on to them over the last 2 or 3 years would actually mean significant losses based on the fact that half of those holdings were purchased between 2014 and 2015 during a time when gold prices were hovering at around 1,300 USD to 1,400 USD per troy ounce.
This makes it evident that buying gold at current prices would still be beneficial to these investors as it would assist in bringing down the average price of each ounce held by these investors. That said, if gold is still under a ‘buy blanket’ when will the ‘sell signal’ drive the market, the answer is not anytime soon as the world is still stabilising itself and deciding on which direction to go, at least as far as the commodity market is concerned as most are still wondering if the current financial system will be able to withstand the current pressure it is under and manage to make it through another cycle as new fiscal policies are introduced into the monetary system.
A short ‘sell run’ may occur if at all gold prices hit 1,350 USD, however this run will not last as strong market resistance is expected well before 1,400 USD and the current initiatives that the Feds are taking targeted at tightening monetary and making the capital market more attractive by increasing rates will continually cap commodity prices and the end of support from the commodity explosion in China’s makes it even more difficult for the market to gain the momentum it needs to break the current gravitational pull of fiscal measures.
Gold’s current bad run dipping below the 1,200 USD mark may actually not be a bad thing as again the prices are providing incredible leverage for those who intend to reduce the price average of their gold holdings, the fact that the lower prices are directly attributed to speculations of the intended rate hike by the Feds gives another window of opportunity for those holding unto dollars to convert them into gold for better margins from gold in the near future, as the dollar is at its peak and it is unlikely that the dollar will rise much more than where it is at the moment.
Gold is expected to play a downbeat right up to the end of the 3rd quarter of 2016 before it will provide any avenues to sell, until which point, buying gold would be the best alternative.