Gold (NYSE:GLD) has been something of a “haven” for investors in recent years, as the precious metal has proven to be unusually resilient to turmoil in broader markets. Currently trading near an all time high of $1540 per troy ounce, Gold investors have seen their investments appreciate by nearly 500% over the past 10 years, as prices for gold futures stood at just $260 in the early 2000s.
Could the resilience in the gold market have as much to do with the psychology of “Gold-bugs” (investors obsessed with gold) as it does with economic action. According to Philip Romero, a finance professor at the University of Oregon, gold investors are an unusually devout crew. “Many investors ‘date’ stocks, but some ‘marry’ gold. The holding period for stocks has been shortening, but I expect holding periods for gold have been lengthening, maybe even forever — till death do they part.”
The surge in gold prices in recent years has been inversely correlated to one economic barometer, the value of the US dollar (NYSE:UDN). Dollar values have dropped off substantially in comparison to other currencies in that time frame as the United States trade deficit has continued to widen and the federal budget deficit has inflated dramatically. According to one source this is probably as good an explanation as any for the persistent bull-market for gold, the source said, “[gold is] primarily and inversely tied to the dollar, anything causing the dollar to lose value will cause gold to rise in price.”
However, not everyone is in agreement with this perspective. Other investors believe gold is tied to a “myriad of factors” such as monetary policy, available liquidity, and the presence of extreme market conditions. All this begs the question of whether gold, which has consistently outperformed the markets (even in the last three months) will remain a safe bet for investors in the near and medium term.
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According to one MarketWatch writer this is difficult to gauge, “That correlation [to the dollar] makes it appear as if investors can easily predict gold’s (NYSE:GLD) next move, but they can’t.” Unpredictable, not-relatable, and certainly unavailable, it is tough to say how investors’ attraction to gold will sway in coming months.