The beginning of the New Year was not so different from what we saw during the end of 2015. The entire world economy is trying to go back to its coveted balance, but the turbulent phase which has passed through the financial markets is not over yet. Are gold and silver one the best commodities to trade this year?
If mathematics is not an opinion, and 1+1=2, then it should also rely on the fact that if the financial markets are full of volatility, traders choose at least a safe haven to trade hoping for a profit.
Therefore, it seems more difficult to make a forecast on which financial markets to invest, it does not seem so difficult to trust in commodities. Oil apart, of course, at least for the moment.
But let’s see specifically when this rule is true or not true.
Let’s start with debunking the myth just described: with the slowdown in global economic growth, prices of commodities are being targeted.
After increasing for most of the past decade, in fact, commodities prices have collapsed in the last four years. The cause of this is attributable to three factors: the collapse of oil prices in 2014, the appreciation of the US dollar and the transition of the Chinese economy from manufacturing to service.
This explains why, at the end of 2015, the Economist Intelligence Unit reported that ‘commodity prices will improve only marginally in 2016’.
The EIU reported an increase of 4.2% in 2016 in the prices for base metals. According to the report, this increase will predominantly be driven by a price increase in aluminum prices. ‘Weak demand from China is expected to keep copper prices down as the former metal is used extensively in infrastructure and manufacturing projects’.
In a previous article, we discussed thoroughly the oil situation. It is not good to invest in black gold at the moment but you have to keep him under close observation.
A safer refuge is represented by Gold that historically has always been a refuge in times of storm. This might confirm what I wrote before.
Earlier this year, Goldman Sachs had developed a report on commodities, confirming that price of commodities would not have suffered a staggering upward.
However 2016 started, surprisingly, with a significant upside to both precious metals, gold and silver, which seemed to have found (at least temporarily) the status of a ‘safe haven’.
Despite the turmoil during start of the year, it seems that gold tends to do well when other financial markets are volatile because many investors head for the precious metal as a ‘safe haven’ in the belief that its performance will not be correlated with other assets.
We can make into a lesson what happened to the price of gold since the beginning of this month.
On February the 1st, the price of gold was around $ 1,120 per barrel and closed at $ 1,128 an ounce. It began to diminish the effect generated after the decision of the Bank of Japan to introduce negative interest rates.
The following day, the price of gold opened at $ 1,125 and the day after was the day of the statements of the president of the New York Fed, Bill Dudley about the fact that a further strengthening of the US dollar could have a “significant impact” on the US economy.
The dollar began to fall, which gave a further boost to the precious metal, bringing the price of gold up to $ 1,142 per ounce in the same day.
Here we are with the price of gold at $ 1226.26 per ounce this week.
Now, you can choose to believe in rising prices of aluminum or in falling prices of copper, but gold do not have to miss in your portfolio. Never.