Over the past two trading days, gold futures prices plummeted over $200 per ounce, the largest dollar-based drop since trading began in the U.S. in 1974. On percentage terms, prices fell almost 10 percent, a 30-year record in itself. Gold is considered a safe haven investment where people and institutions park their capital when economic conditions are unstable. Gold has also been a way to store value for thousands of years, and that is unlikely to change. Over the past eight years, gold prices have soared, given the U.S. financial crisis, real-estate bust, European economic turmoil and other global problems that made conditions unstable. But investors have grown tired of low returns and their appetite for risk is increasing. As a result, money has been shifting away from safe assets like gold into riskier assets like the stock market. The past few months have seen gold prices go down and the stock market soar. Since no one wants to be the last investor holding an asset, several technical and fundamental triggers let investors into a sell-off over Friday and Monday.
Small-business owners who didn't have their fortunes in gold coin should take this as a good sign. Investors either out of frustration with low returns or because of a renewed sense of economic optimism have liquidated large portions of their gold position in favor of riskier assets. This means improved prospects for other types of investments that traditionally provide a better return, including private equity and venture capital investment. It also means investment in residential, commercial and industrial real estate, all of which lead to more business for small businesses that are linked to this market.
A sell-off in safe assets is no guarantee that conditions will improve, but maybe it is one of the underlying triggers to the gold price plummet. The Federal Reserve indicated that it may slow down its efforts to stimulate the economy, which is a sign that they believe conditions are stabilizing. If so, this will serve as clear sign that despite turmoil in other parts of the world, the U.S. economy may be on the mend.
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