Is the price of gold heading back to $1,000?

The Motley Fool
Gold bars
Gold bars

At the beginning of the year, gold was all the rage. Investors rushed to buy the yellow metal as concerns about the state of the global economy grew, and traders looked to profit off market volatility.


Unfortunately for gold bulls, the world didn't end over the summer (good news for the rest of us), and as a result, the price of gold has come off the boil since mid-September. Indeed, since September 23 the price of gold has slumped from a high of $1,343 per ounce down to $1,263/oz at time of writing. At the end of last week, gold traded as low as $1,247/oz.

After these declines, the market's technical analysts are worried about where the price of gold will go next. Some analysts are predicting that after breaking through $1,300/oz the next stop for the gold price will be $1,200/oz. Other analysts have refrained from posting a price target, merely stating that gold prices could head "much lower."

Gold was up 25% for the year before its slump but after recent declines gains have been curbed to 19%. The big question investors will now be asking is whether there are further declines to come.

Trying to predict the future

It's always futile to try and predict short-term price movements for any asset and gold is no exception. The price of the yellow metal depends on many different factors including trader sentiment, which is highly unpredictable. A lot of gold's price action over the next few months will depend on whether or not the Federal Reserve decides to raise interest rates later in the year, the outcome of the US election in November and escalating tensions in the Middle East.

However, with so much uncertainty in the world, it's probable that the price of gold won't crash to the $1,000 level in the near term. Physical buying of the commodity is still strong and demand will remain elevated, especially in regions such as India and China, for the foreseeable future.

For long-term investors, short-term price fluctuations are nothing to worry about. Over the long run, gold has shown itself to be an excellent hedge against inflation and uncertainty. During periods of market uncertainty, investors usually flock to gold to protect themselves and devoting a percentage of your assets to gold can be thought of as an insurance policy against market uncertainty. The price of gold usually reacts positively to events that cause the value of paper investments, such as stocks and bonds, to decline.

Foolish summary

So overall, it's difficult to tell what the price of gold will do in the short-term, although with so much uncertainty in the world, it's unlikely the price of gold will fall back to $1,000/oz in the near-term.

Moreover, the metal has proven itself to be an excellent hedge against inflation over the years, which implies that the price of gold will continue to rise over the long-term. Also, gold can act as an insurance policy for your portfolio, so no matter what its price does in the short-term, as a long-term disaster hedge, it's invaluable.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.