In the last couple of years, gold had been influenced by the numerous government stimulus packages. But lately, we all are well-versed with the fact the Fed have said a definite no to more stimuli. Simple logic would suggest looking at gold with bearish glasses because the bullish catalyst won’t be around anymore. But there was a time, before the Fed reverted to stimulus packages, when gold rose on other prevailing factors. Hence, this article tries to address the factors which could make gold rise again.

Traders in gold have always pointed to the alternative asset being used as a safe haven instrument in times of trouble. But the current scenario suggests this is not the case. Gold is acting like just another trading entity right now. Analysts will tell you that ‘safe haven’ does not fall 7% in two weeks. Traders certainly look to safe havens for stability and security in rocky times. Lately, gold has not been safe and stable. It has paralleled the markets since the end of June.

From a long-term perspective, believing it will provide safety again, new developments around the world may again flock investors towards gold. Currently, the possibility of Greece leaving the Euro zone and even JP Morgan’s $2-billion blunder added some uncertainty to the world markets. What could we consider that might cause gold to turn bullish again and provide stability while the markets walk on a thin red line?

In 2011, the Federal Reserve purchased 61% of the total treasury debt issuance. So the government is subsidizing its own spending and borrowing by expanding its balance sheet and making it look like everyone wants to purchase a piece of U.S. debt. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. In fact, interest in U.S. debt is lessening.

What is going to happen to the rates if the Feds stop cloaking the real debt picture? That's when inflation will hit hard. It is a smoke-and-mirror play in an election year. The Fed can't allow the interest rate to rise with the debt outstanding.

Trying to figure out when the gold is going to rise and gold becomes a safe haven again is going to depend upon the Fed's manipulative moves in this election year. Other than global events beyond our ability to control, it does not look like gold is going to be a safe haven investment in the near future.

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.