After the $1,300 per ounce barrier last week, gold prices declined sharply on Monday. This was probably a result of profit taking and the recent uptrend in the dollar. Additionally, a near-term increase in crude prices has sent markets higher, robbing the yellow metal of some of its sheen.
However, 2016 has been a particularly good one for gold. Additionally, the yellow metal is set to move higher given that conditions for its recent gains remain in place. Adding gold stocks to your portfolio may be a good option at this point.
Fed Keeps Rates Unchanged
Long-term trends show that gold gains when most of the world’s economies are devaluing their currencies. At the conclusion of its two-day meeting last month, the Federal Open Market Committee (FOMC) decided to keep interest rates flat within the 0.25% and 0.5% range.
Additionally, FOMC said that it expects “only gradual increases in the federal funds rate.” The Fed’s decision to hold rates where they are has helped the yellow metal gain nearly 19% year to date. After last Friday’s disappointing jobs report, the central bank is likely to maintain a dovish stance going forward.
Bank of Japan Holds Steady, Dollar Falls
Moreover, Bank of Japan (BoJ) kept its interest rates unchanged and announced no new stimulus measures to control the yen’s movement. Consequently, the yen increased almost 4% against the dollar to 108.12 yen. The stronger yen dragged the Nikkei 225 3.6% lower, which in turn had an adverse impact on global markets.
Additionally, the European Union, Sweden, Denmark, Norway and Switzerland continue to keep their rates in negative territory. The idea is to boost exports and consequently growth by depreciating their respective currencies.
Our Choices
While accommodative central bank policies have increased gold’s luster, markets have experienced two consecutive weeks of declines. This has increased the attractiveness of gold as a safe haven asset.
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