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Investing in gold? Read this first

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Gold price

Gold has started the New Year with a bang. Trading at $1,172 an ounce on January 2, gold reached $1,259 per ounce on February 5, a gain of 7.4% in just over a month. It actually reached a high of $1,296 an ounce on January 22 but has retreated since.

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Series overview

In this series, we’ll explore some of the factors responsible for the recent movement in gold prices. We’ll also look at some indicators investors can track to get a sense of what direction the price of gold will take.

Investors usually view gold as an inflation hedge. As a result, gold prices are influenced by a set of related factors:

  • macroeconomic outlook for the US and other world economies
  • performance of alternative assets such as equities, bonds, and the US dollar
  • interest rates
  • inflation

We’ll talk about how US data affect gold prices, as well as data from elsewhere. We’ll also learn how quantitative easing by the European Central Bank impacts the precious commodity’s prices.

Later in this series, we’ll talk about each of these broad indicators and the factors that influence them. We’ll also provide some perspective on where the price of gold could be headed in relation to all of these indicators.

Holistic view

Most of these indicators are published monthly. Some of the indicators are reported weekly or quarterly. One very important thing to keep in mind while examining these indicators is that you should analyze them as a whole, since many are interrelated.

Indicators point toward the direction of gold prices and gold-backed ETFs such as the SPDR Gold Trust (GLD). They also indicate share prices for companies such as Goldcorp (GG), Barrick Gold (ABX), Newmont Mining Corporation (NEM), Kinross Gold (KGC), and ETFs such as the VanEck Vectors Gold Miners ETF (GDX). These companies combined make up 29.2% of GDX.

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