The price of gold hit a year’s record low this Monday with a dip of nearly four percent. Predictions of a continued decrease have investors downright scared. Some blame the Chinese economy for the sudden drop, while others think the plunge is a normal fluctuation.
Notable currency forecaster Claude Erb predicts the value will drop as low as $350 per ounce, a level not seen since 2003. As a comparison, the yellow metal was trading for $1,600 or more in 2012 and currently trades below $1,100 per ounce.
“It’s very overvalued right now,” said Erb to CNNMoney. Like bond and stock prices, the price of gold often moves in extremes before returning to its fair price, which Eb estimates to be about $825 per ounce (a 25% drop from today’s worth).
“Gold has not been glittering for a long time,” says CNNMoney correspondent Paul R. La Monica. “Gold is often viewed as a sort of a fear trade type investment. When you’re worried that the world is going to be ending, that’s when gold does well.”
Fear of inflation is the biggest reason people invest in gold, but according to Monica, “the dollar is super strong right now.”
Anthony Chan, Managing Director & Chief Economist for JP Morgan explained on CNN: “Historically, when the dollar gets stronger, it actually has a negative impact on gold.” A rise in interest rates can also have a negative impact on the value of gold.
Many believe the Chinese economy is the culprit. “Gold is a good bet because central banks around the world are going to buy it as a reserve. China is not doing that as much and now with all the worries about China’s economy and stock market, that’s putting pressure on gold price as well,” said Monica.
Chan agrees that the Chinese economy does have something to do with it, but that “gold is under some downward pressure for many other reasons” including the fact that many “retail investors, as they saw prices coming down, are looking for liquidity in gold and selling gold because they can’t sell their shares.”
Whatever the reason, it is too early to know for sure just what will happen to the price of gold in the near future. As investors scramble for answers, the words of Warren Buffett come to mind: “Gold is just a cube that sits there and doesn’t do anything, doesn’t accumulate any wealth.”
If you’re worried about a potential currency collapse, click the link below to listen to the interview between Sheila Zilinsky (AKA the Weekend Vigilante) and controversial survivalist and conspiracy theorist Steve Quayle.