Gold is a fickle asset. Because it doesn’t produce any cash flows or earnings, it’s price is ultimately driven by the story that investors are telling themselves. And this story, good bad or otherwise varies from person to person, depending on who you ask, and when you ask them.
Some of the factors that can move the price of gold include but are not limited to*:
The fact that investors pile in when it’s going higher and rush for the exits when it’s going lower is a factor worth considering. Erb, Harvey, and Viskanta looked at how the financialization of gold, or “massive passive” as it’s been called, might be driving prices.
They conclude:
Does there seem to be a stable, equilibrium, cointegrating relationship between ETF gold holdings and the real price of gold? Yes.
It’s hard to say for sure what’s moving gold right now. I would say the cleanest story is the weakening dollar, but then again gold was rising long before the dollar started falling, so did gold buyers know something that dollar buyers didn’t? I guess it depends on whose story you’re listening to, but doesn’t it always.
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.
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