The Risky Conditions Are Ripe for Higher Gold Prices in 2018

Bitcoin has made a steady recovery since collapsing in the first week of February. But it’s still well below 50% of its December 2017 peaks. Most surprising, however, is gold. Gold prices started to show strength in the last weeks of 2017, reaching a peak of well over $1,360 per ounce at the end of January 2018.

It’s a moment when everything related to market speculation seems in limbo. The Dow Jones continues to hover around 25,000 points. The February correction has clearly scared off enough equity investors to prevent a quick return to the January record highs.

Of all the investment “products” now, gold (and even silver) is the one that makes the most sense. There’s simply too much economic, political, and international uncertainty to take risks investing in stocks. And, there’s way too much opacity around Bitcoin and other cryptocurrencies—not to mention the extreme volatility—for anyone to recommend these so-called financial “instruments.” Yet, gold remains stuck at around the $1,325-1,335 range.

Its lesser cousin, silver, has performed in a similar manner. Oddly, gold and silver were gaining just as the Dow Jones index was setting its all-time records. Normally, gold and equities have a negative correlation. One goes up when the other goes down. Bitcoin, meanwhile, has added a new and confusing element to the mix, passing itself off as an alternative “safe haven” from Wall Street.

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Still, gold should be trading at a much higher price. Given the extent and the nature of risks now, one would expect a resumption of the gold rush. Those who like cryptocurrencies and the innovation they represent could compromise, investing in gold-backed crypto values. These are essentially convenient tools of investing in gold with the added “hip” attraction of a cryptocurrency veneer. Australia’s Perth Mint plans to “mint” a physical gold-backed cryptocurrency. In the United Arab Emirates, OneGram already tried this experiment in May 2017. (Source: “Cryptocurrency backed by gold being developed by Perth Mint to entice investors back to precious metals,” Australian Broadcasting Corporation, January 23, 2018.)

Why Is Gold Not Reaching Its Potential?

For reasons explained below, gold should be trading well over $100.00 higher than its recent highs. In other words, gold should have reached $1,500 per ounce. After all, one of the factors that has influenced Wall Street’s performance lately is the prospect of rising inflation. That, until recently, was a trigger for bullish gold activity.