As the gold prices nosedives, it is seen that is less buying interest in the gold market. The gold futures for the next delivery have hit a six year intra-day low. On Friday, the spot price has set around $1,134 per ounce.
The best time to invest in gold is when the demand is the least in particular, if a person believes in long term fundamentals. There are a few factors that drive down gold and these are known to everyone by means of the following,
- Potential US Fed rate hikes that would lift up the real interest rates
- A stronger US dollar that will not get stronger with following US rate hikes until and unless there is interference from the Fed
- The fading of systemic risk in the financial system as nervousness around Iran, China and Greece have abated at least for a short term
- The market positioning via exchange traded funds seems to be net short with a goal of most $1,000 per ounce.
All of these factors have affected the price of the precious yellow metal. Keep in mind that gold started the painful correction in 2013 when Ben Bernanke then Fed Chief tipped at the possible monetary tightening. A couple of years later, we are yet in the zero interest rate policy environment. At this time, Japan and Europe have announced their own quantitative easing programs to wrestle the deflation.
Gold had the best bull markets that any asset class has witnessed between the years 1998 and 2011. The correction is steeper if the parabolic moves up. It remains ironic how gold hit an all time nominal high of the European debt crisis in the year 2011. Gold has no intrinsic value as it belongs to the category of non-yielding assets, but there are no new factors that drive the price of the metal down.
The gold prices rose with an increase in the internet rates from 1985 to 1987. Between October 2003 and October 2006, this relationship broke down astonishingly as the US real interest rates increased above the negative one percent to three percent. As per an analysis, the average monthly return of gold since the year 1975 is 0.6 percent that translates to 7.5 percent return in annualized terms. So what say? This is the best time to invest in gold when the prices are looking south.