Possible Bright Spots for Gold

gold bars and stock chart

Yes, gold is still struggling, but there may be a few signs that things are not quite as bad as they seem.

A Hint from China

As US investors continue to dump gold, few may be willing to adopt the contrarian view that these low prices represent a buying opportunity. However, that is not the case with Chinese investors. The demand for gold has gone up significantly China in the past month, as compared to previous months. Make of that what you will.

Trump Effect

A major part of the reason for the market bump and gold dump is the implications of a Trump presidency. Senior portfolio manager at SkyBridge Capital, Troy Gayeski has said:

“The Trump victory has delivered the sum of all fears to gold investors due to the combination of anticipated pro-growth tax reform, a rollback of the hyper-regulation of the Obama administration, and the potential for fiscal stimulus.”

Yes, well, none of that is exactly a done deal. And it could take quite some time to become a reality. Imagine the market effect if major legislation gets stalled…which is not unheard of.

Reality Check

The Fed announcement seems to have taken just enough air out of the market balloon to keep it from hitting 20,000 any time soon, after all. It may have also gotten investors thinking a little harder about inflation.

Rob Lutts, who is not only CIO of Cabot Wealth Management, but also author of The Great Game of Business: Investing to Win, is actually pretty positive about gold prices for the next couple of years.

“I suspect investors are beginning to realize what my economic professors at Babson College told me about more money chasing the same goods and services. It can only mean one thing: inflation.

We cannot grow money supply 5% to 6% year after year and not expect that will affect the prices of goods. Expect inflation to rise gradually as wages and higher commodity prices find their way into the economy. We would not be surprised to see gold trade at over $1,500 sometime in the next 24 months—up 20% from current level.”