Gold is at the center of the bull market as far as the United States economy is concerned. The S&P 500 and Gold prices are on a path for a bearish reversal. Is this a good time for investors to purchase gold?
When the stock markets start to go down, the demand for stocks usually decreases. Gold is the opposite – it is usually seen as a hedge against recession.
If the stock prices continue to drop, there may be a time where gold will be a safe haven. As the economy suffers further, stocks will not get back up until the Federal Reserve steps in. That is what happened during the dot-com crash. The government stepped in and provided liquidity that allowed companies to come back and keep growing.
With the stock market in recession and the Federal Reserve on a course to tighten interest rates, there is a big chance of another crash. For those with long term investments in gold, the bottom line is that this could be the low point. Many investors have been in the market waiting for a bottom to hit and they are getting closer every day.
If the gold prices wobble into wall street close, there may be a big spike in the price again. The fact is, the supply of gold has not been limited but is being sold rapidly. This will cause the prices to go up. The supply and demand dynamics of the market mean that if there is a significant increase in the supply of gold then there will be a major increase in the price.
The trends of these bull markets are always shifting as people become more worried about their future. That means investors who have been waiting for a bottom in the price of gold will likely get their wish soon.
Since the Federal Reserve wants to slow the decline, they are likely to begin tightening credit after the stock prices start to go down. They have already been tightening credit and interest rates and the move is expected to continue.
Those who have been investing in the market hoping for the bottom in stock prices will lose all hope as the trend reverses. They may not see an end to the recession but it might mean that the government takes action to prevent the economy from further deterioration.
In the past, when the economy was in trouble, the government took action by purchasing stocks and bonds. But the government might have to do that again because the stock market may be going into the red again and it may make sense to use their money buying stocks and bonds instead.
A recession will mean more government involvement in the stock market and stock prices. When the economy goes in trouble the central bank has to do what they can to stop the bleeding and that means investing more money into the market.
If the gold prices wobble into wall street close, the governments are likely to increase their investment in the market and that could mean a new bubble in gold prices. As the bubble bursts, the price will fall in a matter of weeks or months and the price of gold will stay high.
Those who had been waiting for new highs in stocks and bonds may not have been so patient after all. With the unemployment situation deteriorating and stocks losing ground, many investors might be willing to wait out a new bubble before jumping on the bull market bandwagon.
The S&P 500 and gold prices are likely to remain on the high side during the recession. However, it is possible that investors who were holding on to their money would get lucky at the bottom of the downturn and pull off some real profits. That would mean even higher gains on top of the gains they made over the last few years.