Gold Price Steadies as Speculative Fervor Subsides

What a wild ride it has been for gold so far this year. While gold ended last year on a strong note, having hit new all-time highs late in the year, no one expected gold to go on such a tear so early.

A combination of continued safe haven buying, fears of geopolitical conflict, and strong central bank purchases have helped to keep the gold price elevated. After reaching over $2,400 an ounce in the last few weeks, gold has started to settle down above the $2,300 mark.

This phenomenal growth so early in the year has upset many predictions about gold’s performance through the rest of the year, as many analysts couldn’t even imagine gold gaining so much this year, and we’re only into April.

But now that some of the speculative fervor has died down, gold has settled at a level that is more likely to offer support for further growth over the rest of the year.

Why Analysts Say What They Do

Analysts of precious metals are like analysts in a lot of other fields. They’re often locked into a presency bias that has them assuming the continuation of the status quo.

If gold ends the year on a strong note, they’re likely to say that gold is going to continue moderate growth over the next year. If gold ends the year on a losing streak, they’re likely to say that gold will see moderate retrenchment over the next year.

When gold pushed to over $2,400 an ounce, many analysts revised their estimates for gold’s year-end price target to $2,500 an ounce or more. In many cases they’re just assuming that what is happening right now will continue to happen in the future.

If something drastic were to change the trajectory of the gold price, they would likely put out revised estimates. But in most cases they’ll assume that the status quo will continue.

For most people, we’d rather be just a little wrong than a lot wrong. Analysts are no different. So it’s easier for them to make a small prediction and then have to revise it a few months later than to make a big grandiose prediction and have to lose face when it doesn’t come true.

That’s why so many analysts were so cautious in their predictions for gold in 2024. Predictions of gold at $2,200 in 2024, or of a record high of over $2,150 per ounce by the end of 2024 were common predictions at the beginning of the year.

Even the most bullish projections didn’t have gold hitting $2,400. Yet here we are not even at mid-year and gold is sitting comfortably above $2,300 an ounce and seemingly has a lot of room to run.

Why Gold Has Pulled Back

Once gold passed the $2,400 mark there was understandably a good amount of euphoria about gold’s future. It’s only natural when an asset appreciates so much so quickly that fervor starts to build up.

That kind of activity attracts speculators, those looking to make a quick buck, which may have happened with gold. After a good run to over $2,400, gold has now pulled back and is trading between $2,300 and $2,350 an ounce.

Part of this has to do with profit-taking, as it’s only natural that profit-seekers would seek to enter a market for an asset that is climbing so much. Now that the profit has been taken, gold is settling into a more steady trading range.

The fact that Iran and Israel are no longer at risk of going to war with one another has also helped dampen speculation. When the likelihood of escalation in the Middle East looked certain, the gold price shot up on a wave of safe haven buying.

Now that Israel and Iran have completed their tit for tat strikes, there is no immediate threat of war. However, that’s not to say we’re out of the woods yet.

There’s still the fact that Israel plans to invade Rafah in southern Gaza, something that could invite retaliation from Hezbollah or other actors. And that persistent threat could inflame tensions at any moment, spurring more safe haven buying.

Finally, China has recently enacted changes in its gold futures markets, seeking to tamp down on some of the speculative fervor that has been helping drive up gold prices. By pushing some speculators out of the market, that has also helped to moderate the gold price.

Is Now the Time to Buy Gold?

What this means for gold, however, is that this could be the next floor of support for gold before it once again shoots upward. And that means that this could be the last chance to buy gold before the price increases again towards the end of the year.

With fear of recession growing all the time, safe haven demand for gold remains strong. Inflation remains elevated, the labor market is showing signs of weakness, and industrial production is stagnating, all of which point to a growing possibility of recession later this year.

When the economy started to decline in 2008, gold also saw significant price growth. From October 2007 to March 2009, the gold price increased 25%, while markets lost over 50% during the same period.

Gold went on to nearly triple from its 2008 lows to its all-time high in 2011. And many people are banking on gold to repeat that kind of performance during the next recession.

If you’re worried about the performance of your assets during recession, or you’re worried about how inflation might impact your wealth, maybe it’s time to start thinking about time-tested safe haven and inflation hedge: gold.

Whether you want to purchase rolls of coins to store at home or protect your tax-advantaged retirement savings with a gold IRA, gold can play an important role in safeguarding your financial well-being. Call Goldco today to learn more about the numerous gold purchase options we have available for you.