Now is not the time to get spooked by gold’s recent price drop. Gold is the best asset to have in your portfolio to protect the wealth you have worked so hard to acquire, and getting out (or not getting in) now will only put your finances in jeopardy. Gold is experiencing the lowest prices in six months, but the metal tends to perform this way each year at this time, and current low prices are actually beneficial to investors who want to purchase gold before the price goes up again.
In order to make the right gold investments, you have to understand the gold market. A thorough knowledge of why the gold price behaves the way it does will enable you make purchases that will protect your wealth from detrimental economic phenomena, like inflation and currency devaluation, as well as make a profit in the end. Let’s take a look at a few attitudes you should have when entering the gold market, and trends and economic factors that influence the price of gold and its future.
Long or Short?
What you should know about the gold market right now is that those prepared to go long with the precious metal are the ones who will ultimately come out on top. Investing in gold is not a get rich quick scheme. Those who buy gold now and stick with it through to the end will be the ones who are financially better off than those who played gold short or didn’t buy in at all. It is important to have an attitude of patience and prudence if you want to use gold in your favor.
This is because the economic situation that makes gold a smart investment right now is far from over. The US economy is being manipulated in such a way that will be advantageous for gold in the coming years. For example, gold responds positively to low and negative real interest rates. The real interest rate is what you get after you adjust the nominal interest rate set by the Federal Reserve for inflation. Historically, gold has responded positively to real interest rates that dip below 2%, which we saw happen in 2010. In 2011, it was 1%, and in 2012, the real interest rate dipped below 0% and has yet to go positive again.
The Fed reported in January that it plans to continue printing money with abandon indefinitely, going so far as to say that it would continue to do so even after seeing economic improvement, as a “just in case” measure. To put it plainly, the monetary policies that drove the real interest rate down below 2% and into the negative will continue, so there is no reason to believe that it will rise anytime soon.
Gold has been experiencing a price cycle in the last eight years in which it sees a higher price spike every 21-22 months, and that cycle is about to come back around to its high point sometime between May and July. Market “short hands” who became spooked by gold in the beginning of 2013 will most likely be disappointed that they didn’t have faith in the yellow metal and stick with it through to the end, as this cycle is expected to repeat itself at least two or three more times.
Gold and Inflation
Remember when you were a child and wondered why some people had no money while others had way too much? You asked your mother, if there’s not enough money, why don’t they just make more? It’s just paper, after all. Your mother laughed and told you that it wasn’t that simple.
Well, apparently, the Federal Reserve doesn’t consider the question to be as laughable as your mom did years ago. Now the US central bank, as well as others around the world, are printing more and more money to stimulate economic growth. Now, this has so far not led to increased inflation because the vast majority of that money is going directly to bank coffers and just sitting there. Two factors are needed to increase inflation. The first is more money supply, the second is higher money velocity, which is the rate at which money changes hands in an economy. As all that dough is just sitting in bank vaults, inflation hasn’t spiraled out of control.
But that money has to leave those vaults at some point, and when it does, inflation will rise, most likely at an astronomical rate. And gold is buddy-buddy with inflation. Higher inflation equals a higher gold price. Therefore, understanding that higher inflation is in our future is advantageous to one who is considering investing in gold.
Gold and Currency
A good basic rule of thumb to use when dealing with gold involves the metal’s relationship to the US dollar. And it’s a simple one, at that. The dollar tanks, gold soars. It’s that easy. Gold has a negatively inverse relationship to paper money. As paper money declines in value, people look for something that will still have value, i.e., gold. Gold has an inexplicable hold on man, and his fascination with it will ensure that gold will always be of value to humankind.
So pay attention to the dollar index, which measures the value of the US dollar in relation to other influential world currencies. If it drops, gold will rise.
The US and other world economic leaders are currently devaluing their own currencies on purpose with money printing schemes like quantitative easing. This is a palliative solution that might increase exports now and spur short-term economic growth, but it is one we will pay for in the end.
Getting Into Gold Before It Goes Up
During times of economic uncertainty and political instability, gold has historically acted as a counterbalance to poor performance by other markets and asset classes. Throughout its history with mankind, gold has maintained its purchasing power. That is, an ounce of gold will buy today the same that it did a hundred years ago. The dollar, however, will not. Hence gold’s current value that its over 550% higher than it was 12 years ago.
The current market situations make right now the perfect time to purchase gold, before loose monetary policies spiral out of control and send the gold price skyrocketing. It is a smart financial decision to buy gold now, while prices are relatively low.
The safest gold investment you can make is one in physical gold, such as gold bullion bars and coins. They are tangible wealth that you can store at home in case of emergency. Here at certified gold exchange, we can advise you on the best physical gold purchases to suit your specific financial portfolio. We do not manage accounts. We counsel household investors so that they can be in complete control of their own financially sound investments.
If you would like more information on understanding the gold market you can request a free copy of our 2015 Gold Investment Guide today. To start making the investments that will protect your wealth in the future, give us a call at 1-800-300-0715 or visit our website at www.CertifiedGoldExchange.com.
Recommended for you: Gold IRA Rollover Guide and Silver Investments.
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