Gold Will Head Down in the Short Term but the Year Still Looks Good

Gold Will Head Down in the Short Term but the Year Still Looks Good

Gold hasn’t been having the best of times in the market as of late. In fact, on Monday, the precious metal clocked its third straight trading session of declines. After a strong beginning to the year, many are starting to wonder whether or not gold is in for tough times ahead. While in the short term, the value of gold is likely to see further declines, when looking at what to expect throughout the year, things still look pretty positive.

Why Gold Is Likely To Fall In The Short Term

Gold is an interesting commodity. While the commodity, like others is heavily dependant on the law of supply and demand, the factors that cause movement in supply and demand are different than most others. That’s because gold is a safe haven commodity. Therefore, while gold will have both upward and downward trends based on the demand for the metal in practical use like jewelry, decoration, and other applications, it is also heavily dependent on investing related factors like economic conditions, geopolitical conditions, and market conditions.

With that said, while gold is a commodity that is known to increase in value over time, we do see short term runs toward the bottom here and there when investing related conditions point to signs of reduced safe haven demand. That’s exactly what’s happening right now. Economic conditions in the United States are improving. In fact, on Monday, news broke that existing home sales increased 1.1% in the month of March. The strong growth suggests that consumer sentiment with regard to economic growth is positive. After all, not many people are interested in buying a house if they don’t feel as though their job is secure.

As economic conditions in the United States improve, there will be some resistive pressure added to the commodity. At the end of the day, safe haven demand is important for the precious metal. So, when economic conditions prove to be positive, safe haven demand tends to decline, leading to periods of slumping gold prices. This combined with the fact that gold is priced using the USD, and strong economic conditions are pushing the USD upward making gold less accessible outside of the United States, could lead to declines in the near term.

There Is A Silver Lining Here

While the gold price is likely headed downward in the near term, there is a bit of a silver lining here. At the moment, investing related pressures are leading to the commodity’s edge downward. However, use-based demand is likely to climb in the coming months and throughout the year, which could lead to gains later on.

The increased consumer demand is likely to come out of India and has to do with the season of love. In September, the Indian wedding season will begin, and in India, there’s no decorative option that’s quite like gold. In fact, it’s the one thing that just about every Indian wedding has in common… you’re likely to see a ton of gold. Therefore, demand for the precious metal is likely headed up in just a couple of months as those preparing for their big day in India plan their weddings.

Final Thoughts

The truth is that in the near term, gold isn’t likely to see much by way of positive movement in the market. However, in the scope of the full 2018 year, the precious metal should end the year positive. For clues as to the next moves in the price of the commodity, keep a close eye on both economic conditions as well as consumer demand as we head into the Indian wedding season.