The Week in Gold: What’s Causing Gold to Fall?

While January proved to be a great month for gold, the momentum has reversed this month.

Today we’ll take a look at what caused February’s dramatic decline in the gold price and whether or not we can expect to see an increase any time soon.

What’s causing the price of gold to fall?

To understand why the price of gold moves in one direction or another, it’s important to know why investors choose gold in the first place. Gold is considered a safe-haven investment. It’s a great way to hedge against loss in the stock market when it seems like negative activity is all but inevitable. So essentially investors choose gold as a way to protect their assets.

Keeping that in mind, it’s easy to see why the price of gold increased in January and fell this month. All we need to do is look at what makes investors tick….

Economic activity

One of the biggest trends that investors watch is economic activity. After all, in tough economic times corporations have a hard time generating the profits that are generated when the economy is booming. So around the world smart investors watch the economy.

In January, there were major economic concerns revolving around Greece’s involvement in Europe, Europe’s economic condition as a whole and dwindling activity in other regions around the world. As a result, many investors got spooked, ultimately leaving the market and investing in gold.

However, February hasn’t been a bad month economically at all. As a matter of fact, Greece will remain in the Eurozone, the European Central Bank has started a quantitative easing plan to stimulate growth and the United States’ economy is showing incredibly impressive signs. All in all, investors are noticing the economic growth and growing more comfortable with investing in the market once again.

Corporate earnings

Another major factor for investors is corporate earnings. After all, investors spend money on growth! While corporate earnings in the fourth quarter could have been better if the dollar wasn’t so strong, overall the reports were a hit. As a matter of fact, Coca Cola (NYSE:CCE), Twitter (NYSE:TWTR), Apple (NASDAQ:AAPL) and several others did far better than expected.

The Q4 earning reports started to surface in late January and early February. With so much good news being reported, investors had yet another reason to be more comfortable with investing in stocks rather than gold.

Commodities

While gold is a commodity itself, it also moves in reaction to other commodities. In this case, the movement was in reaction to the price of oil. As oil continued to fall, commodities investors started to look to gold as a way to keep their investments safe. However, the oil price seems to have somewhat stabilized in the month of February, ultimately causing investors to start considering oil-based investments once again.

Final thoughts

As outlined above, there are several reasons for the decline in the price of gold. The real question now is: how long will it take for the price to start moving in the other direction? Personally, I think we’ll continue to see the price of gold fall until stabilizing at a low mark. The price will most likely remain stable until late May as investors start to speculate with regard to the Federal Reserve’s plan to increase interest rates. That, coupled with concerns about the end of the European Central Bank’s short-term quantitative easing, could cause the price of gold to skyrocket.

Joshua Rodriguez has been infatuated with finance for as long as he can remember. Even as a child he was interested in money, how it worked, why it was used and how he could earn it. It’s only natural that he chose a financial career path.

Today Joshua is the part owner of finance news outlet CNA Finance. He is also the Market Monday Contributor and lead columnist for anyoption.com. His writing has been featured in major finance news outlets like Seeking Alpha, Talk Markets, USNews & World Report, Investing.com and several others.

Joshua is known for discussing news revolving around commodities, tech markets, economic activity and more. He’s also known to dabble in forex and binary options trading from time to time. To ask Joshua a question or suggest a topic for his column, feel free to contact him at cnafinancehelp@gmail.com or by phone at (503) 464-6502.