Gold has been the talk of the town in the commodities space for quite some time now. As the price of the precious metal continued to fall, several experts have been talking about when the metal is likely to rally. However, if the last 10 days are any indication, that's not likely to happen any time soon. As a matter of fact, the value of gold is currently in the midst of the worst decline its seen since the year 1996. Today, we'll talk about why gold is seeing such massive declines and whether or not we can expect to see a rally in the price of the precious metal by the end of the year.
Why Gold Is Falling So Much
There are several factors playing into the massive declines we've seen in the value of gold. Here are the most influential issues the precious metal is facing…
- Strong US Dollar – As with most other commodities, the value of gold is priced using the United States dollar. However, the dollar has been incredibly strong lately. Because the US dollar is so strong, gold's is more expensive in other nations. Unfortunately, the high cost of gold in other areas around the world has caused massive declines in demand; ultimately bringing down the value of the precious metal.
- Chinese Gold Stockpile – China is the world's largest gold producer. For decades, the country has been known to stockpile the precious metal; reducing supply and supporting higher prices. However, recently the central bank of China provided a rare update with regard to how much gold it's stockpiling. Unfortunately for the precious metal, that report showed that China isn't stockpiling gold as quickly as they have been known to. Ultimately, this increases the world's supply, causing the value of the metal to see further declines.
- Inflation Isn't Going As Expected – In 2011, the value of gold climbed in a big way. That's because as the Federal Reserve moved forward with economic stimulus plans, investors feared that inflation figures would soar; causing a bit of turmoil in the market. As a result, the investors purchased mass amounts of gold as a way to hedge against the upcoming inflation issue. However, inflation hasn't become an issue; and as inflation figures stay low, more and more investors are offloading their gold reserves.
When Will Gold Rally?
This is the million dollar question my friends. While I can't see into the future, I do have my opinion on when this is going to happen. The reality is that for gold to see an increase in value, we are going to have to see the value of the US dollar decline; which believe it or not, isn't likely to be too far off. As a matter of fact, I'm standing by my predictions earlier this year that we would see a gold rally in the fourth quarter. The way I see it, the Federal Reserve is the key factor here.
Throughout the year, we've heard several statements from the Federal Reserve with regard to when it will raise interest rates. Its goal is to do so by the end of 2015. When this happens, we are likely to see dull activity in US markets as well as a decline in the value of the United States dollar. As a result, the value of gold should climb. So, investors should keep a close eye on the Federal Reserve as their movements are likely to generate profitable trends around the precious metal by the end of the year?
What Do You Think?
Will the value of gold rally by the end of the year? Why or why not? Let us know your opinion in the comments below!