The fact that gold retains an important place in the economy is mainly because it is an investment vehicle. Since metal has historically been a safe haven, investors turn to the gold market to diversify their portfolios, grow their savings, or protect themselves from the financial markets’ downturn.
When stocks fall dramatically, investors turn to gold. They decrease their exposure to equities and buy gold in its various forms: physical gold or paper. It has the effect of increasing the price of this precious metal. Likewise, when markets recover, investors reduce their exposure to gold to invest in more volatile instruments.
Unlike stocks or bonds that can regularly pay dividends or coupons, you can only gain value from trading gold when you liquidate your positions at market price. To earn regular profits from gold, it will need to be actively traded, which is riskier. Although this is a safe haven, traders can still lose quickly in this market, especially if they leverage gold derivatives.
Storing Physical Gold Is Expensive
If your means are limited, physical gold may not be readily available. The costs of holding bullion in banks or dedicated brokers are quite high.
Should We Sell or Buy Gold?
The first thing you shouldn’t forget to think about when buying gold is reselling! You cannot afford to lose 20, 30 or even up to 50% of your gold value in this way. And we must also beware of intermediaries who apply a tax that should not be applied!
But Gold Is Not Always a Good Investment
To determine the thresholds for investing in gold, let’s look at its performance against its results over the past ten years. The main thing to remember is that gold is not always a good investment. The best time to invest in almost any asset is when market sentiment is negative, and the asset is inexpensive, offering substantial upside potential when it becomes favoured again.
Each investment has its advantages and disadvantages. If you are opposed to owning physical gold, buying back shares in a gold mining company might be a safer alternative. In case you believe gold could be a safe bet against inflation, investing in coins, bullion or jewellery is one way forward to achieve gold prosperity. Finally, if your main interest is to use leverage to profit from the rising price of gold, the futures market might give you an answer, but be aware that holdings based on leverage have a fairly high risk.
Gold Prices Over the Years
When evaluating gold’s performance as a long-term investment, it really depends on the time period analyzed. For example, over 45 years, gold has overvalued stocks and bonds, while more than 30 decades, stocks and bonds have overvalued gold. Over 15 years, gold has overvalued stocks and bonds.
Moreover, during the past 30 years, the price of gold metal has increased by 335%. Over the past 15 years, the gold price has risen 315%, roughly the same as the 30-year yield. These returns are mainly attributable to the speculative bubbles that arose in the late 1990s.
In mid-2019, the gold price was still below the record high (nearly 1,813.25 euros per ounce reached in September 2011). The price follows a trend that has been respected by the market since mid-2001.
The relative strength of gold prices versus oil, which is a sought-after commodity, has been remarkable. The price of crude oil has fluctuated considerably at one point; With its level having fallen by more than 50% in 2015, the cost of gold has fallen only slightly. It’s interesting because the prices of gold and oil tend to line up, to some extent. Oil could lose more than 50%, and gold could remain stable, suggesting a great deal of buying power and support in the gold market. Whilst oil prices have risen in recent years, this gap in relative price strength between oil and gold persists.
Rachael is a content writer at Pearllemonleads.com, who has written on a Ultimate Resume Guide, from colored diamonds to SEO software. In her spare time, she enjoys singing, sketching, cooking, and video games.