Reasons to invest in gold are increasing each day. Don’t pay too much attention to the mainstream; it is pessimistic towards the yellow metal for all the wrong reasons.
You see, between 2008 and 2012, there was just one major phenomenon driving gold prices higher; money printing by the Federal Reserve. It was running its printing presses at full throttle and as a result the value of the U.S. dollar compared to other global currencies came down. Investors rushed towards the precious metal to preserve their wealth.
Has anything changed since then?
Yes, the Federal Reserve isn’t outright printing money anymore, and the U.S. dollar is rising now. Is this enough reason to stop paying attention to the precious metal?
When looking at gold, investors have to broaden their perspective. Gold is a global asset and not just entirely based in the U.S. As it stands, central banks around the world are printing without any remorse and working very hard to devalue their currencies.
China Devalues its Currency; Investors to Rush Towards Gold?
Just recently, we heard that the People’s Bank of China devalued its currency for three days in a row. Here’s what must be understood; the Chinese central bank devaluing its currency is similar to what the Federal Reserve tried to do after the financial crisis.
The Federal Reserve had to print money so as to flood the market with the U.S. dollar. For the central bank of China, the currency isn’t freely traded; it ultimately just has to dictate the trading ranges lower.
With the Chinese central bank lowering the value of its currency, won’t it drive Chinese investors, who have been hurt by the stock market as well, into gold? I don’t doubt it for a second. I suggest to give it some time. Then data will tell the entire story.
Here’s something that also shouldn’t be forgotten; as China devalues its currency, its makes exports from its trading partners expensive all of a sudden. We must ask; who is stopping them from printing? It will not be shocking to see China’s closest trading partners to start devaluing their currencies in order to remain competitive.
Other Central Banks Printing
China’s shouldn’t be the only story when talking about central banks trying to bring down their currency value.
It is really appalling that no one is talking about what the European Central Bank (ECB) is doing; it is printing as well. And, it is expected to print well into 2016—printing 60 billion euros a month. (Source: European Central Bank, January 22, 2015.) The value of the euro compared to other global currency has dropped significantly.
Don’t forget Japan, too. It has been printing for some time, and the value of Yen has plunged as well.
How to Really Look at Gold Going Forward
I am looking at gold differently. I see the yellow metal is currently being ignored. No one wants to own it, and those who talk about it being a great long-term opportunity are being ridiculed.
Look back at history; whenever an asset class is ignored, or there’s severe pessimistic sentiment towards it, it’s usually an indicator that suggests we may be closing in on the bottom.
Mind you; don’t rule out wild swings just yet. There’s still a significant amount of noise that suggests gold prices are headed lower.