Is It A Good Time To Invest In Gold?
Gold existed before there were dollars, euros, yen, or pesos. Gold has served as the world's de facto currency for thousands of years due to its beauty and scarcity. The first gold coins were produced about 550 BCE, and the "gold standard" supported contemporary paper currencies well into the 20th century. Gold is still regarded by investors as the ultimate "safe haven" asset, a tangible investment that holds its value better than "paper" investments like cash, equities, and bonds. Because of this, whenever there is worry and apprehension about the state of the economy, advertisements for gold coins will start to appear on television and online. And the price of gold rises as demand rises.
Gold prices will rise whenever there is market uncertainty brought on by geopolitical concern, according to Jim Wyckoff, senior markets analyst with Kitco Metals. That helps to explain why gold's price soared in the first ten years of the twenty-first century. Gold was only about $272.65 an ounce at the end of 2000, when the stock market was rising and the dot-com bubble hadn't yet burst. But with the economy in a slump and the 9/11 events, investors started buying gold starting in 2001. After the Great Recession had been underway for a few years and the War on Terror had been ongoing for ten years, anxious investors drove up the price of gold to an all-time high of $1,917.90 an ounce in August 2011.
Should You Purchase Gold During Economic Uncertainty?
Short-term investments in gold can be dangerous, despite the fact that it retains its value over the long term, especially when contrasted to paper currencies that are susceptible to inflation. Similar to stock prices or other assets, gold prices fluctuate based on regional and global economic situations as well as investor mood. Simply consider what occurred in February and March of 2020. Investors turned to gold as a safe haven as concerns about the escalating coronavirus pandemic and its impact on the economy grew, which raised the price. Gold's cost exceeded $1,700 per ounce on March 4. According to reasoning, more people would gravitate to gold if the stock market fell further, driving up the price.
Then, though, something startling and unexpected occurred. A decade-long bull market in stocks entirely collapsed, turning into a ferocious bear as the Dow Jones Industrial Average plunged by more than 20% in a matter of days. Investors received margin calls from their brokers to cover any leveraged positions as they saw their stocks suffer significant losses. They urgently required cash in order to offset such margins. When you can't sell what you want, you sell what you can, according to an old adage in investing, explains Wyckoff. Because the gold market is more liquid than the stock market, traders were able to sell some of the gold they had bought as a hedge against a falling stock market.
The price of gold dropped more than 20% between March 11 and March 16, matching the decline in the stock market. It's a difficult time to be an investor right now because to the tremendous volatility in the financial markets and the debilitating uncertainty in the global economy. Wyckoff, however, fully anticipates that the bleeding will cease and that gold will rise. According to Wyckoff, commodities are very cyclical in nature. "If you look at long-term charts, they go up and down rapidly, and that pattern repeats itself time and time again. I suspect that gold prices are going to reach all-time highs above $2,000 an ounce in the next years, maybe even this year."
What Factors Dictate The Price of Gold?
The fact that the supply of gold is essentially fixed is one of the reasons why gold prices are so sensitive to changes in demand. Since mining gold is complicated and expensive, there isn't really much of it in use today. According to our best estimation, just 209,483 tons of gold have been extracted throughout human history, and only between 2,755 and 3,306 tons of gold are discovered each year. In contrast, the United States produced 1.8 million tons of steel in only one week. The London Bullion Market Association determines the price of gold based on the financial analyses of anonymous auctions that are conducted every 45 seconds.
The spot price of gold and the price of gold futures are the two primary prices. The cost of gold right now is known as the spot price. Typically, you pay more for gold when you buy it and are paid less when you sell it. The supply and demand for gold from investors, banks, etc.; market circumstances; and whether a currency is appreciating all affect the spot price. The futures price, which is based on the spot price, anticipated supply and demand, and the cost of physically transporting the metal, is a contract for the delivery of gold at a future date. Futures on gold are viewed as being quite risky.