Gold is one of the most
controversial metals in the world. On the one hand, there are gold-bugs, like
Stanley Druckenmiller who believes strongly on the yellow metal. On the other
hand, there are gold bears like Warren Buffet, who have decried the metal as a
scam. Warren is bearish on the metal because it does not have any major use and
that it does not pay a dividend. In fact, as shown below, the S&P 500 has
been a better performer than gold in the long term. When you add the dividends,
the increase is even more observable.
Gold proponents argue that the
metal’s historic use make it a desirable holding for the long-term. In fact,
they believe that the fiat currencies like the dollar hold no value because
they are backed by nothing. However, there is a consensus that the price of
gold is somewhat related to that of the USD. This is because around the world,
gold traders use the dollar. Therefore, when the monetary policy in the US
tightens and the dollar strengthens, gold tends to weaken.
This month, the price of gold has
been on an upward trend for a number of reasons. First, investors expect the
Federal Reserve to leave rates unchanged. Others expect the Fed to lower
interest rates as they move to support the economy. In fact, this could happen
if Trump’s nominations of Stephen Moore and Herman Cain is confirmed.
Another reason why the price has
been gaining is that China has become a major gold buyer. According to the
People’s Bank of China (PBOC), the central bank bought more than 360K ounces of
gold. Its gold reserves now stand at more than 60.62 million ounces. This
buying comes at a time when the country’s economy is slowing and when it is
engaged in a major trade conflict with the United States. This buying has added
support to the metal at a time when it is competing with the soaring stock
market. This year alone, the major indices in the US have gained by more than
10%.
Therefore, there is a likelihood
that the price of gold could continue moving higher. If it does, it may first
hit the important resistance level of $1320.
The post Gold Rises as China Increases its Gold Reserves in March appeared first on Forex.Info.