Gold has had a nice run since last summer, but wise investors shouldn’t count on its winning streak continuing. Late Tuesday, the precious metal hit its highest levels in more than six years, surging briefly above US$1,600 an ounce, after Iran fired missiles on U.S. military bases in Iraq.
On Wednesday, the World Gold Council reported that eager investors have been pouring money into gold-backed exchange-traded funds, boosting the funds’ holdings to a record peak.
These sound like bullish developments for gold investors. However, there is good reason to be skeptical. Gold is just as likely to fall as rise over the next few months.
Much of the current enthusiasm for the metal is based on two arguments. One is the notion that rising Middle East tensions are sure to boost the price of havens such as gold. The other is the conviction that low interest rates will spur more enthusiasm for precious metals.
Unfortunately, neither idea is quite as solid as it appears. Investors should be particularly wary of the notion that precious metals do well in times of geopolitical crisis.
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