Get out those dancing shoes as things could start to get musical with the yellow stuff again, however Gold has dropped significantly recently. Prices have plunged more than 11% from their highs earlier this year to about $1,150. Much of the sell-off has taken place in the past few weeks as the dollar has strengthened. That’s key. Gold is often looked at as an alternative currency. It does well when investors are worried about the outlooks for the legal tender printed by governments.
There are no such concerns about the greenback right now.
Gold Rebound – What’s next for gold?
Jeffrey Gundlach, the well-known investing guru who runs the money management firm DoubleLine Capital, is reported to have said in a presentation earlier this week that he thinks gold could rebound to $1,400 an ounce.
His reasoning? Negative bond yields in Europe will make gold look more attractive.
Gold consistently outperforms any other assets and is considered the best hege against infaltion. This means that when other markets are volitile and creating concern, then investors turn to Godl and other precious metals as a safety investment and long-term strategy. The negative bonds are a concern because they signal deflation, therefore investors tend to remove themeselves from that marketplace and turn to Gold so as not to lose in other investments.
Still, it’s important to note that Gundlach has been bullish on gold for some time. And the negative bond yields overseas may also reflect the fact that the European Central Bank is finally buying bonds right at the time that the Federal Reserve is expected to soon start raising interest rates.
Higher rates in the U.S. should make the dollar even stronger. And that could be bad for gold — at least in the short-term.
“It’s the expectations of Fed rate hikes that are hurting gold. Momentum is bearish.” said Jeffrey Nichols, senior economic advisor with Rosland Capital.
But Nichols agrees with Gundlach. He thinks gold should eventually bounce back.
Why gold will rise
It is acknowledged that prices will probably remain volatile for the next few months. However Nicholas believes the growth of the middle class in China and India holds the answers to the rise in the gold markets due to the consumer demand for gold.
“It’s only a matter of time before gold turns around,” he said. “Gold should climb to a much higher price over the next three to five years thanks to physical demand from emerging markets.”
This means that foreign buyers will also increase their demand for gold and therefore will create the rise in the prices of gold in 2015 and on.Many central banks may find that gold looks like a safer bet than the euro.
“Over time, gold prices will appreciate. Russia, China, India and central banks of other countries are looking to diversify their holdings. Buyers of any type will provide a floor for gold,” he said.
Cuggino also conceded that gold prices will jump around a lot for the foreseeable future. Still, he has about 20% of the fund’s assets tied up in gold as a way to hedge against inflation and market volatility.
That’s a much higher percentage than most financial advisers recommend for the average investor. But a little bit of gold as a long-term bet probably makes sense for your portfolio.
CNNMoney (New York) March 12, 2015: 1:39 PM ET