The last couple of weeks showed just what effect global events can have on the price of gold. The Federal Reserve announced some positive economic data and the price dropped. A Malaysian Airlines jet was shot down and the price of gold jumped. Early this week gold prices plummeted as the stock market rallied, only to bounce back over $1,300 an ounce by the end of the week as investors looked for bargains.
Showing what a difference a day can make, on Thursday gold slipped to its lowest level in a month due mainly to signs of improving economy. According to ABC News, “The Labor Department said Thursday that the number of people applying for unemployment benefits last week dropped to the lowest level since February 2006.”
On Friday, gold rebounded from this drop because of escalating conflict in Ukraine and Gaza. According to Bloomberg , on Friday, “Gold and silver futures jumped the most in a week as havoc in Eastern Europe and the Middle East boosted demand for haven assets.” Despite the seemingly endless ups and downs, overall this year gold prices are up 8.6 percent.
The fighting in the Middle East is only going to get worse and there is increased pressure on Russian President Vladimir Putin to respond in the wake of the Malaysian Airlines crash. All of this volatility tends to scare stock investors and typically leads investors to start buying gold.
Physical gold is typically used as a safe-haven investment during times of global unrest and as a hedge against inflation. For this purpose, a number of experts would recommend that gold make up between 5 to 10 percent of an overall investment portfolio. However, in this time of instability in most of the world, and a global economy that seems to be on the tipping point, precious metals may be one of the few constants.