The year 2013 was a difficult one for gold investors. Markets saw annual declines for the first time in more than a decade and this led many with physical assets and stock holdings to begin questioning their initial investments. But there are some clear signs that the precious metals market is ready to turn, and this could create some interesting opportunities for investors that are looking to get back in at lower levels. At the moment, gold futures are posting their longest rallies in more than a quarter, and this trend is being matched in silver markets as prices are now at their highest levels in more than a month. This is clear evidence of a broad change in trends that could extend well into next year.
This potential turnaround in gold prices is something I have been writing about in recent articles over the last few months. There is a variety of reasons for why this is likely to occur but it is important to remember that these projections are geared mostly toward long term positions. Precious metals markets are notoriously difficult to forecast when looking at potential price changes from a short term time horizon. This is especially true now (perhaps more than ever) given the strength of the bearish downtrends that have been seen in recent memory. Gold prices are now well off of the all-time highs set above $1,920 an ounce that was set in April of 2011.
Where are the Buying Opportunities?
But what is most important to remember is the fact that declines like the one seen last year are what present the best buying opportunities when looking at the markets long-term. This means buying into these markets conservatively and holding positions even if we see additional downturns. Recent evidence of strength, however, has been seen in conjunction with softness in the US Dollar. Gold is priced in Dollars, so these two assets tend to move in opposite directions (showing an inverse correlation). In addition to this, investors tend to use gold as a way of hedging against inflation and currency devaluation, so if we continue to see market forecasts in this direction gold prices could continue to benefit.
“The US Dollar is trading at two-year lows against the Euro, and this is helping push gold prices higher,”said Tony Davis of Atlanta Gold and Coin Buyers. “On the back of these trends, we have seen rising demand in gold and precious metals.” Those looking for alternative investments are able to achieve some level of protective hedging, and this could prove to be a prudent strategy given the changing tone of the language presented by the US Federal Reserve. Improved economic data has made it much easier for the Federal Reserve to change its monetary policy in a move that I have been promoting for months. As GDP data continues to improve, the Federal Reserve is likely to continue removing stimulus from the economy.
Stocks, Commodities, or Gold?
Of course, it always makes sense to diversify your assets with a steady balance of stocks, bonds, commodities and currencies. But if the Federal Reserve continues to remove monetary stimulus, the projections for corporate earnings in stocks is likely to suffer and this section of the market could start to underperform. This is especially true now, given the fact that the benchmark indexes like the Dow Jones Industrials and the S&P 500 continue to post record highs. For these reasons, it makes sense to start looking at gold as a viable long term investment as we head into next year.
Gold futures have risen back above $1,210 per ounce after a very strong week that was marked by three consecutive sessions of gains. So, while gold has dropped 28% in 2013, there are reasons to believe that this downturn might be coming to an end. Rallies in stock markets cannot continue forever, and if we do start to see some downside corrections in the major benchmarks, there is a strong possibility that we will start to see investors move back into gold markets as a protective hedge against inflation and equity declines. Volatility is always a possibility when we are talking about precious metals, which tend to trend with strong momentum and a great deal of force in the underlying direction. We could be seeing the beginning of the change for 2014, however, so it makes sense to at least look at these markets as a potential method for diversifying out of traditional stock benchmarks.
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