All About The Big Picture….
2015 is shaping up to be a somewhat-volatile year for the gold market. January brought on a fairly sharp uptick in prices following alarming lows late in 2015. And yet, the recovery already appears to be on hold, with prices having dropped a bit in recent weeks (though not to the low points of last November). Naturally, there’s a great deal of disagreement among investors and financial publications as to where gold prices are going from here. BusinessInsider.com posted a widely read report citing a very negative outlook on the price of gold from Credit Suisse, which named strength in the U.S. dollar and the rise of equities as financial hedges as the reasons for bearish predictions. Even so, plenty of independent analysts have forecasted a relatively strong (though not lucrative) year for gold.
Given this level of uncertainty, now seems an appropriate time to revisit some of the strategies involved in playing the gold market. Back in 2012 we posted an article on the Gold Fix, essentially outlining the process by which six specific London bankers meet to manipulate the price of gold. Full details are in the article, but it basically goes like this: these men meet and state values of gold they wish to buy or sell until the group reaches a net sum of zero. Independent interests are naturally at play in this process, and for that reason the meetings add an element of unpredictability to day’s end gold prices. This is the case regardless of larger trends in the market.
Before anybody gets too worked up over this manipulative process, however, consider that it’s mostly relevant in day-to-day trends. This can perhaps have a strong impact on gold futures and ETF traders, but for the gold market as it pertains to the actual purchase of precious metal, daily manipulation shouldn’t be as significant a factor.
To clarify, many investors view the concept of gold investment as the purchase and storage of gold bullion—a process that generally takes place online at independent gold markets where prices are updated in accordance with world standards. However, the idea with investments like these, as opposed to playing futures or ETF markets, is long-term holding. Online marketplace BullionVault.com manages over $2 billion in assets at any given time with this practice and encourages investors to feel confident with long-term holdings by offering a choice of secure vaults around the world for the actual storage of physical gold. While the site also allows for immediate purchase and sale of bullion to suit investor needs, the idea of storing metal caters to a more far-sighted approach that’s typical of this corner of the gold market.
It’s ultimately clear that there are two different sets of strategies to apply depending on your brand of gold investment. For those who take a day-trading approach to the market, gold-fixing manipulations add a degree of uncertainty to an investment that’s already facing increasing instability because of external factors. And for those looking more to long-term storage of physical gold, larger market factors such as those pointed to by Credit Suisse in its 2015 outlook will be of the greatest concern.
For most strategic gold investors, it’s the latter that should be more relevant. While gold certainly can be day-traded, and even online vaults cater to this style of trading, the more traditional approach to this particular commodity has always been long-term. People generally invest in gold as a hedge against deflation in currency values. If prices rise, it’s because of varying unease and uncertainty in world economies. So even in a 2015 that’s looking difficult to predict for gold, keep your eye on the big picture. Gold fixing is impossible to predict and shouldn’t have a strong impact on a long-term investment, and week-to-week shifts in prices as we’ve seen early in 2015 will blend into the larger trends of the year as time moves on. Investing in the first place is a decision for each individual investor, but in gold, reacting to small shifts is foolish once an investment is made.