After a strong June and July, the month of August 2014 saw gold give back some of its gains, only to increase again as the month began to unfold. Specifically, gold began the month of August around $1,280 per ounce. As of August 12, 2014, the metal had rallied back above $1,300 to about $1,309 per ounce. The rally has helped bring gold’s 20 day average back above $1,300 as well, currently (August 12, 2014) at nearly $1,302 per ounce.
The second week of August saw gold reach a two week high of about $1,321 per ounce. This came as a result of continued tensions between Russia and Ukraine, a situation that has helped gold’s price all summer long thus far. As of last week, Russia banned almost all food imports from Europe, the U.S., Australia, and other western countries via sanctions over Ukraine, which could create political and economic issues in the area, as well as humanitarian issues for families and people affected and unable to get food. The ban includes meat, fish, milk, fruits, and vegetables from the above countries.
Russian Prime Minister Dmitry Medvedev also recently said in a televised Cabinet meeting that the country is considering banning all air traffic from Western countries from flying over Russia on routes that go into and out of Asia. If this pans out, the move would cause significant airfare increases due to additional fuel needed to reroute the flights, as well as extended flying times. This comes soon after the recent shooting of a Malaysian Airlines flight, so travelers are already uneasy about these routes.
Similarly, tensions in the Gaza strip, as well as U.S. airstrikes in Iraq, also created increased safe haven gold buying in the first half of August, driving up the metal’s price. With so much tension occurring in Russia and elsewhere, it’s no surprise that gold’s price has grown again this month. Based on the latest developments, these situations look to get worse before they get better, which is also good news for gold’s price.
Russia and China have both begun to accumulate large quantities of gold, and with Russia isolating itself from the Western world, this may increase gold’s price as the supply decreases. Global tensions are often motivators of buying physical precious metals like gold and silver. Aside from the increased value created by the turmoil, gold and silver are the best way to protect yourself from decisions made by governments that are not in your best interest. If economies falter, or stock markets crash, physical gold and silver is separate from those entities, so your investment and wealth remains intact.
While gold has been on somewhat of a roller coaster ride this month, it continues to trend upwards from a long term perspective. Year to date, gold is up, though is still going through the long recovery process from the dramatic decline experienced last year. Many experts believe gold’s price will continue to be choppy in the months ahead, but will generally continue to climb. It will likely be a slow and steady climb with some bumps in the road, but most analysts are positive on gold in the long term.
How does the rest of August look as we round the corner into the fall season? The political conflicts mentioned above will continue to impact gold’s price and performance, and may drive prices up higher if those situations escalate or gain global media attention. Other unforeseen factors, such as new conflicts, stock market trends, or environmental issues may occur that will also affect gold’s price one way or another. Many experts are conservatively optimistic about gold for the next few months and beyond, expecting overall growth, but not drastic increases. However, no one can say with any complete certainty.
Our strategy on gold is to buy physical gold now, while the price is still relatively low, and hold onto it for several decades. Looking at gold with a long term lens, historically, it has always shown strong returns over a span of 20, 30, 40, or more years. Even though 2013 was a bad year for gold price performance, those who bought gold a decade before are still very much ahead, because the metal saw annual increases in each of the 12 years before that.
Silver, which often follows the same performance trends and patterns as gold, is a similar play from our perspective. The main advantage to buying silver is that it is so much more affordable than gold (roughly $20 per ounce compared to gold at roughly $1,300 per ounce). You can invest in silver coins for the cost of half a tank of gas.
As we head into the latter half of August, the future for precious metals remains bright. Many investors around the world are seizing the opportunity and getting back into precious metals now, during the early stages of what they believe will be a steady price climb over the next few years.
At ITM Trading we have developed a Full Cycle Strategy to help our clients survive and benefit from any financial storm. For more information please contact a precious metal specialist at 1-888-696-4653
ITM Trading 14231 N. 7th Street, Suite B7, Phoenix, Arizona 85022.