Gold prices have always depended on economic factors in the US and abroad: When the housing meltdown occurred in 2008, for instance, the commodity’s price began its ascent to all-time highs. Despite the asset’s decline to $1,641.80 per ounce thanks to the financial woes in Europe, the best question to ask when investing in gold is this: What will happen to the US economy in the next 5 years?
With the US showing little to no sign of recovery, gold prices are likely to stay high. Thus far, Fed chairman Ben Bernanke continues implementing policies that only weaken the dollar. So long as the economy gets flushed with cheap dollars through quantitative easing programs and holding interest rates at record lows, gold will remain a practical asset for investors. A prime reason for the decline in gold prices from its all-time high of above $1,900 per ounce has mostly to do with the spotlight shifting away from US troubles and onto its neighbors across the Atlantic. The shift in attention, however, does not remedy the US’s own problems.
Some analysts claim gold prices are sky-high because the commodity is an asset bubble akin to houses. What these analysts fail to realize, however, is that many countries are beginning to view their dollar reserves as an investment bubble long overdue to pop. With even the United Nations calling for the replacement of the dollar as the world reserve currency, it’s no wonder that governments, investors and average citizens alike want a more stable investment than the US’s ever-cheapening dollar.
Though Europe’s debt problems are unlikely to improve soon, they’re likely to get resolved long before the US economy cleans up its own act. For those who believe the US is a dying empire, gold prices will continue to rise.