Betting the Spread: Is Gold a Golden Investment?

by Joi

by Joi

While we may be a far cry from the 2011 gold rush that saw stock market prices for the precious metal hit an all-time high, the commodity’s recent upswing has prompted many to state that gold may soon be bullish.

Although the experts are still divided on the long-term prospects of gold, small increases have shown that the asset isn’t completely without value or promise and that could make it an interesting proposition for spread bettors. In fact, given the volatility of the gold market and the uncertainty of investors, it makes financial sense for those interested in the stock market to looking outside of traditional trading methods and simply bet on the market.

For those that don’t know, spread betting is a product offered by online platforms such as Tradefair. Instead of forcing people to invest directly in a commodity, such as gold, when you visit the site, the broker simply takes bets on whether said commodity will increase or decrease in value. This means novices can have an interest in the price of gold (by betting that its value will rise or fall), without having being tied to it.

With the unpredictable movements of gold over the last few years, the option to speculate via spread betting instead of direct investment has been a wise one. However, what do the recent changes suggest may happen to the market and, therefore, which side of the spread should gold prospectors be willing to take in the coming months?

Gold Will Rise

Looking back at the historical rise and fall of gold prices, there’s no denying that the market has been hit hard since 2011 and has continued to contract ever since. However, some now believe that the US Dollar is heading for a peak in 2015 and that will create something of a tailwind for the asset. Although the projected gains aren’t likely to be huge, Gary Christenson believes that the price reached a low in 2014 that will gradually be improved upon in 2015. For this reason, the short-term prospects could be positive for gold and, therefore, worth betting on if you want to take the upside of the spread.

Gold Will Fall

Despite the optimism shown by Christenson, a recent dip in value, coupled with likely interest rate increases by US banks, means gold probably won’t increase much, if at all this year. According to Howie Lee, an analyst at Phillip Futures, gold will remain bearish (prices will fall) in the coming months mainly because of interest rate hikes and the increasing value of the US Dollar. With more value now being attached to the dollar, it means less people are seeing gold as an alternative asset and, as a result, it will mean a drop in price.

Off the back of this analysis, Lee predicts that not only will gold fail to breach the $1,300 an ounce mark in the coming months, but that it could drop below $1,200 (in fact this did happen). If this is the case then taking the negative side of any spreads would seem to be the sensible option at this stage. Indeed, as an immediate investment goes, the idea of betting on a price rise for gold in the short or long term is unwise.

Interest Rates the Main Problem

Economic growth in the US isn’t occurring as quickly as many had hoped and that’s undoubtedly hurting the overall price. Moreover, continued uncertainty with the Greek economy, as well as conflicts in Eastern Ukraine, has all taken a toll on the market. In fact, looking at the latest stats, gold still hasn’t managed to gain any traction even after a slight weakening of the dollar. With analysts still wary of the potential interest rate increases by US banks it seems the price of gold will continue to struggle. So, if you are thinking of making a spread bet, it seems as though it would pay to think negatively for the time being.