Three reasons for confidence in gold

When the stock markets plummeted in March, and it became clear major world economies were headed for recession, gold failed to live up to the moment. 

Traditionally seen as an asset that will perform well in the face of market crashes, gold saw its biggest drop in years, seeing its value drop right alongside the stock markets. 

It was a surprising indictment of gold’s unofficial but long-standing claim to safe-haven status.

But it may also have been a misleading start to what increasingly looks like a strong stretch for gold…

Now, toward the end of summer, it’s clear that gold’s value has rebounded. And there are three reasons for continued optimism about where it might go from here…

No. 1: Ongoing economic uncertainty

A boost in U.S. stock markets has left some with the impression that the American economy is rebounding strongly from a disastrous spring. But it’s important to remember that the market and the state of the economy don’t define one another. 

As analyst Genia Turanova stated in a recent post, the economy is still in danger, with unemployment soaring and business closures still occurring. Stimulus efforts have inflated the markets artificially for the time being, and it’s unclear how long the path to recovery will take.

If the market falls off again or the U.S. dollar weakens (something we’ll speak about below), we could see more investors turning to gold.

No. 2: A strong summer so far

Sometimes we don’t need to overthink things. And while most investors will agree that past performance doesn’t necessarily guarantee future success, this particular asset has had an encouraging season so far. 

The price of gold has jumped up by more than $300 in a little over three months, from $1,697.51 on May 10 to now hovering around the $2,000 mark as of this writing. There was a discouraging decline early in June, but for the most part the arc this summer has bent steadily upward. Gold appears to have weathered the crisis, and is heading in the right direction even as other markets continue to face worrying signs.

No. 3: Waning confidence in the dollar

Wall Street strategists have forecasted a dramatic fall for the dollar, and while this doesn’t tell us anything with certainty, it’s also not surprising. Given the U.S.’ ongoing struggles with the pandemic and recession—and some other major nations’ more efficient comebacks—events may continue catching up to the dollar, which has already lost some 3.8% of its buying power over the last three months, as other world currencies’ buying power improves. 

Historically, a weaker dollar tends to mean stronger gold, so this is yet another reason for confidence.

None of this constitutes a guarantee. As you’re likely aware, there is no such thing in investing. But if you’re curious about the direction of gold, these factors certainly point in a positive direction.

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