The world economy is struggling, and investors are now rushing to buy a commodity that has a history of retaining its value during hard times: gold.
Gold is traded through futures. When the markets are bearish, gold is often considered a safe asset, and investors cherish it. The logic behind gold’s stability is related to its ability to function as an alternative currency; it has a high value relative to its weight, and supply is extremely scarce.
It is considered so reliable that at one point in history, the United States backed up every single dollar of currency with the same weight in gold. Although this is has changed, investor attitudes toward the metal have not.
The sense of security that this precious metal emits is once again influencing investor decisions in global markets. With oil now consistently trading below $30/barrel, technology industry stocks falling in value, and emerging markets struggling, the price of gold has skyrocketed during the past month. What seem like peripheral issues are actually directly influencing its value. Gold Futures began February at $1128.00, and have since jumped over 10% up to $1247.80. Year-to-date, Gold has increased in value by 16.75%.
Gold has leveled-out in the past few days, as news leaked that the United Arab Emirates energy minister, Souhail Al Mazroui, said that OPEC is “ready to cooperate” with other oil market players on production cuts. Countries such as Russia have been negotiating with OPEC to try to curb oil production, but talks have thus far failed.
Cutting oil production would lower oversupplies of oil, and help push its price back up. An increase in the value of oil futures might draw investors away from gold; however, yesterday, details of the production curb were announced, and have disappointed many investors. Perhaps gold still has room to climb.