Here’s One Reason Why Gold Prices Could Soar
If you are wondering where gold prices are going next, then just look at what central banks are doing. Their actions suggest the yellow precious metal could soar big-time—a move like the one seen after 2008 and 2009 shouldn’t be ruled out.
Let me explain…
Why did gold prices go up after 2008? One of the biggest reasons was the Federal Reserve. It promised to pump a significant amount of money into the economy. Investors bought gold because the actions by the Federal Reserve would devalue the currency—the U.S. dollar would decline. As a result, gold prices moved from trading around $700.00 an ounce near the end of 2008 all the way to $1,900 an ounce by 2011.
Why did gold prices decline after hitting their all-time highs? After years of printing money, the Federal Reserve changed its narrative and decided to remove the “punch bowl” from the party. Gold prices declined in anticipation.
Central Banks Printing Money: Does It Means Higher Gold Prices Ahead?
Here’s what many fail to realize and you really need to know this: surely, the Federal Reserve isn’t printing anymore, but don’t forget the global perspective. Gold is not limited to the U.S. The yellow precious metal could be called a global asset.
As it stands, around the world, the situation is the complete opposite. Central banks are still talking more interest rate cuts, more printing, and further economic slowdown—this is all great for gold prices.
Consider the European Central Bank (ECB), which essentially looks over 19 countries in Europe. It continues to print money at a rate of 60 billion euros a month. Not too long ago, we heard again from the ECB. We are hearing a significant amount of noise that suggests the ECB could up its ante and print more of the eurozone’s common currency.
The People’s Bank of China is focused on easing. It has lowered rates and more of the same could continue for some time. In order to stabilize the Chinese stock market, the officials have pumped out a significant amount of money, as well.
Look at the Bank of England, too. It was said to be the next central bank after the Federal Reserve to raise its interest rates. Instead, it has pulled back on its rhetoric. Interest rates are expected to remain low for a long while now.
Finally, the Bank of Canada has been lowering rates and talked about the idea of quantitative easing and possibly even negative interest rates!
No matter how you look at it, this is all bullish for gold prices going forward.
The Bottom Line for Gold Prices
We have seen gold prices move higher this year so far. I will not be shocked if central banks’ rhetoric remains the same throughout the year. This could result in an influx of buyers, sending gold prices soaring.
Here’s what you also need to know: thanks to the slump in gold prices, production of the precious metal is stagnant. This means that the more buyers there are, the less gold there is; this could shock the gold market in the short-term. Gold prices could see a massive move to the upside.