Are The Winds of Change are Coming to The Federal Reserve?
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Finally, after reviewing the ’90s, let’s take a look at how gold’s price changed in the recent years due to economic and geopolitical factors.
2010:$1058*-1421 2011:$1319-1895** 2012:$1540**-1791 2013:$1195-1693
2014:$1142-1385 2015:$1099-1295 2016:$1074-1363 2017:$1152-1349*
The first months of 2010 continued the quantitative easing that began in 2008, aimed at offsetting the subprime mortgage crisis by pouring $700B into the economy. This caused investment to continue to flow into commodities at a high rate, including gold. The common outlook at this time that the dollar would be devalued further by more quantitative easing.
Gold was at a new high in 2010 and this trend continued further into the decade. The first two years of this decade include new historic highs for the price of gold. To be technical this was still not the highest price gold had reached, when the 1980 gold price is expressed in terms of the modern dollar. On the other hand, the price breaking the $1000 mark and staying above garnered gold a lot of attention.
During gold’s highest year, 2011, we saw the debt ceiling crisis. The US government could not agree on a budget in April and they shut down for a short time. It is easy to grasp that shutdowns have a negative impact on investor confidence in the economy. Another good reason arose for people to park their money in gold. Similarly there were problems with debt in Europe. The causality here is that debt troubles can be read as a signal of incoming inflation. It was not uncommon to see analysts predicting gold moving up above $2000-3000 (which, as we can see in retrospective, never occurred).
Could you call this a bubble? The price did rise from 2009 to 2011, and by more than double. That isn’t a quick rise, but it does fit the part of the definition about the asset rising sharply. The high range of gold ($1560 to $1895) lasted from July 2011 to April 2013. That is rather long, and doesn’t match the bubble analogy too well.
On top of this, the fall of the price of gold was mild. The drop began in October 2012, and the main portion of it was complete in July 2013. Here the price was at $1329. From then to now, the price has fluctuated sideways in a range from $1074-1385. Again, not exactly what you might call the popping of a bubble. Since gold kept a substantial portion of its value after its high point, that is a strong point against it being a bubble.
Some of the fall can be explained by the recovery of equities (such as the S&P500) in late 2012, and investor dollars flowing back to them. As for the rise of the price to its highs, that coincides with the second round of quantitative easing in the US (QE2). As with QE1, the intervention of the government incentivized a move to gold and other commodities. QE2 was announced late in 2010 and it wrapped up by mid 2011, dishing out $600B. Eventually QE3 was also introduced in September 2013, though this was an ongoing monthly program of $40-85B rather than a lump some. It is possible that QE3 softened the fall of gold mildly, though it does not explain the entirety of gold’s gains.
As mentioned earlier, the time after gold’s fall (July 2013 to now) has shown stable prices. Most of this time range, the price has moved within the range of $1100-1300. The last 5 years have been a less exciting time for gold, with a few quick movements. There was a sharp drop of around $100 starting in late October 2015. Another occurred in November 2016, with the price falling around $170. Both of these dips recovered in less than two months. Overall, nothing too significant.
What is next for gold? It’s hard to say. Let’s consider some things that could affect the future price of gold. China comes to mind, along with the global trade negotiations that are currently in full swing. If they dampen the economy or cause large inflation, that could push up the price of gold. Another factor to keep an eye on is the gold buying activity of China, India, Russia, and Turkey. These countries are known for a strong current demand for gold. If they raise or lower these demands, it could influence the price of gold going up or down, respectively.
We hope you enjoyed our history of the American gold standard and the price movements since its dismantling. Follow our Facebook to see other historical and fun posts, or check our blog directly at www.earn2trade.com!