The price of gold has lost as much as 14% since April, falling all the way down to $1,160 per ounce.
Has the yellow metal bottomed?
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There’s no doubt that negative sentiment surrounding gold has peaked.
The most recent Commitment of Traders (COT) report shows speculative short gold positions growing for the ninth straight week. Short positions against gold are now the largest in COT history.
Media sentiment isn’t any more positive. A recent MarketWatch article tries to explain “why gold might die out as an investment.”
Meanwhile, there are a billion tweets and Facebook posts condemning the yellow metal.
But despite the market’s gloomy outlook, there could be a significant unforeseen increase in investment demand for gold on the horizon.
All over the world, countries are having problems with their currencies. Almost every day it seems the words “currency crisis” are in the news. Whether it’s the result of financial or political factors (or both), there are many important currencies on the verge of complete collapse.
And in an environment of struggling fiat currencies, gold will shine.
Venezuela is the perfect example of the effects economic and political failures have on a nation’s currency. The country’s economic crisis has put the annual inflation rate now over 60,000%!
A roll of toilet paper costs 2.6 million bolivar in Caracas right now.
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And the crisis is far from over. The IMF expects Venezuela’s inflation rate to hit 1 million percent by the end of the year.
For Venezuelans, only a handful of assets have retained value amid the economic crash. Land is no longer very valuable, nor is any kind of real estate. Government bonds are virtually worthless. Gold is one of the few assets that is still valuable.
Due to hyperinflation, the cost of gold priced in Venezuelan bolivar has increased more than 12 million percent. Any Venezuelan who bought gold protected their purchasing power.
But Venezuela isn’t the only country having currency problems right now.
The Turkish lira recently hit a record low, plummeting more than 40% against the USD and putting the country on the verge of an economic crisis.
The Turkish economy has been struggling for years over a combination of several financial and political factors. President Erdoğan has pursued economic growth through spending on major infrastructure projects.
However, these programs have racked up massive amounts of debt for the country — debt the country can’t pay off.
Meanwhile, India’s currency is now at an all-time low against the dollar. A widening national deficit, geopolitical tensions with the U.S., and spillover from Turkey’s currency woes have all contributed to a weakening rupee.
Fiat currency problems all over the world may begin to boost gold sales as investors flee to the safe haven. Currency crises tend to spread quickly. If investors flee to gold, we could see a sharp turnaround in prices.
Now sitting at just $1,185 an ounce, gold is a great buy.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
