Economic Developments Affecting Gold: July 2016

EconomicThe departure of UK from the European Union registered a surprise, if not an outright shock to global financial markets. Despite somewhat of an upbeat performance for 2016, the International Monetary Fund (IMF) has adjusted its global economic outlook for 2016-2017 to a more pessimistic view. When the Brexit vote on June 24, 2016, caused havoc in the international currency market, a new risk-on atmosphere took hold in the world financial markets.
 
Precious metals markets thrive in times of uncertainty, this risky atmosphere has been generally supportive of gold and silver prices. Bond yields have continued to decline in the first two quarters – certainly a positive development for precious metals. Weak interest-bearing bonds tend to fuel investors’ desire to acquire gold in a bull market.
 
In the wake of Brexit, although stock prices immediately declined, they managed to recover. However, equity valuations for UK and European banks remain lower than they were even before Brexit.
 
In the United States, a 1.2 percent growth rate in the second quarter in conjunction with a reworked calculation combined with first quarter results yield a disappointing average growth rate of just 1 percent. Still, the Bureau of labor Statistics issued a fairly robust jobs report. Non-farm payroll employment increased by 287,000 jobs in June.
 
The uncertainty stoked by the U.S. presidential campaign continues to weigh on precious metals prices. If Donald Trump wins, gold could skyrocket, since many of his policies, like trade protections for instance, are viewed by economists as being restrictive.
 
On the other hand, a victory for Hillary Clinton could also be supportive for gold. Professional observers anticipate her projected spending for entitlements would severely bloat the national deficit.
 
By far, the most significant influence this month on precious metals prices has been the Federal Reserve’s failure to raise rates. Although unbridled inflation can damage economic growth, analysts continually stress that a certain level of inflation is necessary for an economy to thrive. Excessively low or even zero interest rates curtail investment, thus limiting economic growth.
 
Uncertainty and a lackluster global economy can only serve to push gold much higher. If you have a nest egg heavily invested in stocks, we recommend you consider taking some of your profits off the table and re-directing them to gold coins. You’ll be catching gold at an attractive price while it still has strong potential for much higher prices.
 
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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