Gold has been experiencing a downswing this week, reaching a six-and-a-half month low. However, the yellow metal found some modest support due to lower Treasury yields, the possibility of another US government shutdown, and concerns about the Chinese economy. Despite this, upcoming announcements and data releases are expected to cause further decline in the gold price before the weekend. The recent weakness in gold can be attributed to the FOMC's announcement last week, stating their commitment to high interest rates.
Long-Term Strength of Gold
Many analysts remain optimistic about the long-term strength of gold. While $1,800 may be the next crucial level, it is expected to surpass $2,000 in the near future. Rising energy prices and slowing global growth are among the reasons why gold is expected to perform well. In a stagflationary environment like this, gold is likely to demonstrate its resilience.
Sale Week for Gold?
This week seems to be a sale week for gold, as even unexpected sources like Costco are selling one ounce gold bars and experiencing high demand. This has led them to limit sales to two bars per customer. This trend raises questions about the faith in the US Dollar and the overall economy. It's clear that something is amiss.
Confusion Surrounding Gold Prices
If you're feeling confused about the recent gold price movements, you're not alone. It would be reasonable to assume that gold should be breaking new records given the relatively high inflation. However, gold has been reaching notable lows this week. Despite this, gold has performed better than expected, given the impact of real interest rates. The relationship between gold and real rates has been undergoing a shift recently, even though they have been closely tied in the past.
Bloomberg's Eddie Spence and Yvonne Yue Li provided excellent insights into this phenomenon. The market usually indicates that investors prefer "safe" government bonds over gold when they can generate decent income. However, the current situation suggests otherwise. Gold appears to be more resilient against headwinds, such as a strong dollar, compared to previous times. But does this mean that the impact of a strong dollar on gold prices can be disregarded?
Not necessarily. While gold may experience some setbacks, the headwinds it faces are relatively mild compared to the challenges the economy and the dollar are confronting. Gold provides a buffer against the uncertainties arising from central bank decisions, questionable monetary policies, and the looming recession. These are extraordinary times, and gold remains a safe haven in such circumstances.
The Golden Bull in China's Shop
Gold is not solely priced in US Dollars. China plays a crucial role in the gold market, and its price reflects the true nature of the precious metal. The bullish activity in China has the potential to redefine the fundamental price assumptions made by analysts. What sparked this change was the Shanghai Price Premium, which represents the premium Chinese buyers are willing to pay over the spot price. In the past month, the demand for gold in China has surged, driving the Shanghai Price Premium to over $100 above the spot price. To put this into perspective, the average premium over the last decade has been $6.
The demand for gold in China comes from both the central bank and its citizens. When China buys gold, it purchases physical gold, making a long-term commitment. This is a clear example of capital flight into gold, as bullion sales have increased by 30% in the first half of 2023. Additionally, Chinese gold ETFs have seen significant inflows, and the central bank continues to buy gold at record levels. The weak yuan and an uncertain property market have prompted individuals and institutions to seek solace in gold.
Experts predict that gold could reach $2,500 to $3,000 in the next 12 months due to this surge in demand from China. The impact of Eastern demand on the global gold price is becoming increasingly evident, and Western buyers are starting to see beyond the rhetoric of central bankers.
Conclusion
Although recent declines in the gold price may be discouraging, there are reasons to remain optimistic. The growing demand for gold in the East is starting to have a significant impact on the global gold market. As investors become more aware of the realities of the economy and central bank policies, gold is emerging as a preferred investment. With China leading the way, the future of gold looks promising, and the bullish trend is likely to continue.
Frequently Asked Questions
Can I have physical gold in my IRA
Gold is money. Not just paper currency. It is an asset that people have used over thousands of years as money, and a way to protect wealth from inflation and economic uncertainties. Investors use gold today as part of their diversified portfolio, because it tends to perform better in times of financial turmoil.
Today, many Americans invest in precious metals such as gold and silver rather than stocks and bonds. Although owning gold does not guarantee that you will make money investing in it, there are many reasons to consider adding gold into your retirement portfolio.
Another reason is that gold has historically outperformed other assets in financial panic periods. Gold prices rose nearly 100 percent between August 2011 and early 2013, while the S&P 500 fell 21 percent over the same period. During these turbulent market times, gold was among few assets that outperformed the stocks.
Another advantage of investing in gold is that it's one of the few assets with virtually zero counterparty risk. Your shares will still be yours even if your stock portfolio drops. If you have gold, it will still be worth your shares even if the company in which you invested defaults on its debt.
Gold provides liquidity. You can sell your gold at any time without worrying about finding a buyer, which is a major advantage over other investments. Because gold is so liquid compared to other investments, buying it in small amounts makes sense. This allows you to profit from short-term fluctuations on the gold market.
Is gold a good IRA investment?
Any person looking to save money is well-served by gold. It is also an excellent way to diversify you portfolio. But gold is not all that it seems.
It's been used as a form of payment throughout history. It is sometimes called the “oldest currency in the world”.
But gold, unlike paper currency, which is created by governments, is mined out from the ground. This makes it highly valuable as it is hard and rare to produce.
The supply-demand relationship determines the gold price. When the economy is strong, people tend to spend more money, which means fewer people mine gold. The result is that gold's value increases.
The flip side is that people tend to save money when the economy slows. This means that more gold is produced, which reduces its value.
This is why both individuals as well as businesses can benefit from investing in gold. If you have gold to invest, you will reap the rewards when the economy expands.
Your investments will also generate interest, which can help you increase your wealth. If gold's value falls, you don't have to lose any of your investments.
Who owns the gold in a Gold IRA?
An individual who has gold is considered to be a “form of money” by the IRS and subject to taxation.
To take advantage of this tax-free status, you must own at least $10,000 worth of gold and have been storing it for at least five years.
Gold can be used to protect against inflation and price volatility. However, it is not a good idea to own gold if you don't intend to use it.
You will need to declare the value of gold if you intend on selling it one day. This could impact how capital gains taxes you owe for cash investments.
It is a good idea to consult an accountant or financial planner to learn more about your options.
Statistics
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
