Going forward, economic and stock market uncertainty will rise. As this happens, without a doubt, gold will do what it does best: protect wealth for investors.Uncertainty will be mainly driven by three factors: the Federal Reserve; a struggling global economy; and investor frustration.
Federal Reserve Going Against the Grain
Right now, the trend around the world is lowering
interest rates—several major ones and numerous smaller ones have done this
since the beginning of the year. Others are keeping their benchmark rates the
same.When you look at the Federal Reserve, it is planning to do the complete
opposite: raise interest rates. And it’s really adamant about it. Not too long
ago, the Bank of England was contemplating a similar idea, but it hasn’t been
very consistent on this view.The big question around this is: will the U.S.
economy be able to sustain itself once the Federal Reserve raises rates?
In the first quarter of 2015, U.S. gross domestic
product (GDP) declined at an annual pace of 0.7%. Higher interest rates also dampen
the economic growth rate. With the U.S. economy already declining, interest
rates moving higher could cause a recession.You see, over the years, the
Federal Reserve has been convincing us that there’s actually economic growth in
the U.S. This is one of the reasons that it’s contemplating raising rates. But
when interest rates rise and the economy tumbles, this could send waves of
uncertainty and cause a flight towards safety—gold.
Struggling Global Economy; China Leading the Way
No matter how one looks at it, the global economy as a
whole is slowing down significantly.Looking at the major economic hubs like
China, we get an even more gruesome image of global growth than from the data
currently available.
Understand this: China is the manufacturing hub of the
world. It produces a significant amount of goods and ships them elsewhere in
the global economy. Its exports can provide an idea about the global demand.
Sadly, right now exports from the Chinese economy are in a slump.
Consider that, in the month of April, exports from China
declined 6.2%, after a decline of 14.6% in March. This year, the country is
expected to report a growth rate of seven percent, which is embarrassing relative
to the historical averages.
Then there’s the eurozone; it continues to struggle as
well. Not much has really changed in the common currency region, and doesn’t
really look like anything will be different anytime soon. The problems remain,
if not becoming even more dire.If the global economy continues to slow down, it
may send investors scrambling to find a place to park their money. This can
cause volatility...and gold in a volatile state is hands down one of the best
investments to hold. It keeps value when other asset classes are destroying
wealth.
Investors’ Frustration Mounting Higher
Since the financial crisis, central banks around the
world have done anything and everything to boost economic growth. Investors, as
a result, have jumped into stocks and bonds, believing that growth will
actually occur.
Over the years, the data have been nothing but sluggish
compared to historical averages. The sad reality is that a significant number
of economies still face headwinds to this day, and the unprecedented monetary
policy has caused bubbles in a few asset classes. In other words, nothing has really
been fixed. On those investors who have been buying in hopes of economic
growth: won’t they be disappointed when they hear there isn’t much growth? It
shouldn’t be surprising to see investors fleeing across different asset classes
and making gold a safe place to be.
Gold Outlook and How to Make Money
Gold, from a fundamental point of view, is setting up
for massive rewards. It certainly doesn’t look like the case when just paying
attention to the price. Investors should be looking at the big picture and
thinking long-term.
As it stands, investors should be paying close attention
to the mining companies. They are currently struggling. But when the gold
market turns, they will provide the biggest bang for your buck.