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Gold Prices and Economic Growth

Written By Brian Hicks

Posted May 6, 2013

In recent months, it hasn’t been difficult to have somewhat of a negative outlook on the U.S. economy. The past week, however, has shown quite a bit of promise, changing the minds of many who have been skeptical up until now. 

gold bar and coinsNumbers on Friday showed the economy gained 165,00 jobs in April of this year, which helped the unemployment rate in America to drop from 7.6% to 7.5%. This may seem like a very small drop, but the fact remains that it is a major shift in the country’s rate of employment, injecting quite a bit of optimism into the future of the U.S. economy.

These improvements come right after the federal government announced it will hold strong to its easing program. The announcement, coupled with the subsequent drop in unemployment, pushed stocks up. As the federal stimulus remains strong, this is likely to continue to have an influence on how the U.S. economy evolves.

A Shaky Global Economy

It would be next to impossible to analyze the U.S. economy without first taking into consideration what is happening throughout the globe.

The global economy is truly in one of the most unstable spots it has been in years, with Europe showing an especially strong air of instability. A total financial collapse in Cyprus this year may have been narrowly averted, but the effect it had on the Eurozone is impossible to deny.

The euro has seen quite a bit of trouble as of late, continuing to slump as time goes on. In an interesting contrast, the U.S. economy has shown signs of improvement as of late.

The contrast between Europe and the U.S. in terms of economic growth is certainly worth noting, although in the end it comes down to the fact that—at present—Europe is floundering to find ways to improve its situation, while the U.S. is enjoying a resurgence from the lows of the Great Recession.

The Effect on Gold 

As one might expect, all the news that has surfaced regarding the global economy, and the shift in America’s economy in particular, has had an effect on how investors are approaching gold.

There are a variety of different standpoints one can take in regards to how gold will be affected long-term by the developments in the global economy, and determining a true “solution” is easier said than done in this situation.

On the one hand, the improving economy in America could have a negative effect on the price of gold. After all, gold is often purchased as a hedge against inflation, and in times when the economy is gaining ground, it tends to fall in value.

The economic news that has come out of the U.S. certainly makes a case for gold faltering. But this isn’t the entire picture. 

The other side of the story comes down to the fact that the economy in Europe has certainly seen better days. This slump could actually help gold to end up back on the rise, especially if things don’t improve anytime soon. 

It became quite clear during the financial disaster in Cyprus that people are becoming more and more concerned with their investments and how they relate to centralized currency—just look at the popularity of Bitcoin during this whole fiasco.

In times when the euro (or any other form of currency) is not performing well, there will always be a collective of individuals who are interested in purchasing gold in order to hedge their bets.

The recent economic news to come out of America is no doubt positive for the country, and the future looks to be quite positive. With Europe struggling to keep up, it’s anyone’s guess as to where gold will end up in the future.

Europe looks to be falling deeper and deeper into a recession, while the U.S. is finally beginning to gain ground again. Only time will tell where all of this will go, especially if the European economy continues to sink into a deep hole.


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