Gold has been an incredibly interesting asset to watch throughout the year. Early on, when the floor seemed to fall out of the Chinese market and the global market followed, gold climbed. However, starting in July, we saw declines as global economic conditions proved to improve. Now, gold is heading back up as investors bet on new year declines. Below, we’ll talk about why investors are betting on declines in the new year, what this has to do with gold, and what to watch ahead.
Why Investors Are Betting On New Year Market Declines
This year has been very interesting in the market. In particular, December has been overwhelmingly interesting. Historically, December has been a month known for market declines. It’s the point at which investors cash in on gains for the year and prepare for the year ahead. However, that’s not what we’ve seen this year. In fact, this December has been a month of gains with many indices around the world nearing or breaking records. The reason for this is three-fold…
- Donald Trump – First and foremost, Donald Trump has been elected as the President of the United States. This move comes with several implications, as you would imagine. One of the big factors here is taxes. At the moment, if investors cash in on gains this year, they will pay around 28% taxes on their earnings. However, Donald Trump has plans to reduce this to around 15%. So, by holding off until January, investors save big on taxes. So, in January, we’ll likely see a massive sell off as investors finally take their profits.
- Oil – Another big factor here is oil. Recently, oil has been running to highs following production cut agreements. However, these agreements haven’t even taken place, and many experts question their effectiveness. As a result, I’m expecting that we will start to see declines in the oil and energy market in the new year, dragging the market as a whole further downward.
- Geopolitical Conditions – Finally geopolitical conditions are far from positive at the moment. This is generally a sign of market declines. With large concerns surrounding the Brexit, relations between Israel and the United States, terrorism, and more, geopolitical conditions are shaky at best, and that will likely weigh on the market.
Why Do Market Declines Mean Gains For Gold
At the end of the day, gold has historically been viewed as a safe haven investment. This means that when we see declines in the market, we tend to see gains in gold. That’s because when the market declines, investors look to gold as a way to keep their money safe. As a result, gold sees increased demand and higher prices.
What To Watch For Ahead
Moving forward, there’s no doubt in my mind that we’re going to see further gains in gold. Chances are that we are going to see slow and stead growth throughout the rest of the year and as we move into next year, things will likely speed up. However, as you know, anything can happen in the market. With that said, there are a couple of things you’ll want to watch for. First and foremost, keep a close eye on moves that Trump makes as he transitions into office. Also, keep a close eye on the Brexit news. Any changes in the Brexit story could lead to big movement in gold. Finally, watch oil closely. At the moment, I believe it is overvalued. As it falls in the beginning of the year, gold will likely rise.
What Do You Think?
Where do you think gold is headed moving forward? Join the discussion in the comments below.