Is it worth investing in buying gold?
We all ask ourselves, when investing in gold if that investment is going to generate profits for us or on the contrary that operation can bring us many losses. We cannot travel to the future and see if it will be a good decision or not, but we can go back to the past and analyze it.
The gold we bought for investment had a spectacular increase in value in 2011, reaching about $ 1900 dollars an ounce. In this way, he tripled the price he had in 2004, making investors who trusted him rich. The causes that caused this rise in the value of gold were diverse. One of them was that the US Federal Reserve (Fed) did not modify its monetary policy, preventing interest rates from increasing, the trend of the US dollar was down and to combat the fear of inflation and unstable political situations investment in gold in certain countries skyrockets.
Since 2011, the price of gold has had various fluctuations, but none as important as in 2011. Even knowing that investing in gold is a long-term investment, all experts recommend investing part of the capital in gold to diversify the investment portfolio. But why does the price of gold rise and fall? How can we detect whether or not it is a good time to invest in gold?
There is no fixed rule and nobody is safe from mistakes since the economy and fluctuations in the stock market come to be determined with what happens in the world, in the economy, and politics, mainly. Anyway, in this article, we will only try to analyze the indicators that usually give us some ideas that something is happening and that it may or may not affect the price of gold.
Accumulation of gold in Banks.
Buying large quantities of gold from countries such as China and Russia, among others, can cause the price of gold to rise or fall. Sometimes the purchase of gold refers to specific moments due to purely cultural causes. Countries such as India and China are large consumers of gold and at certain times of the year according to their festivities and celebrations, the value of gold increases.
Supply, demand and production.
The amount of gold mined and its production can affect whether the value of gold rises or falls. The demand for gold in sectors such as jewelry and technology cause its value to increase and production is increasingly necessary. Large productions of “easy” gold mining are already over. Now, mining gold costs more and that contributes to its value increasing. The extraction of gold will be more difficult and will be in less quantity. The shortage will increase the price of gold in the future.
The U.S. dollar.
When the dollar rises gold falls and vice versa. Unlike other investments, gold pays no interest. In times of low interest and economic uncertainties, the value of gold performs well. Gold becomes a serious alternative for investors when the US currency falls and interest rates are high. When interest rates are low, the price of gold tends to rise, making it more attractive to investors. The United States is the country with the largest gold reserves in the world and therefore any economic event will affect the other countries.
The price of gold will be affected by currency fluctuations such as the Japanese Yen, the Australian Dollar, or the British Pound. Inflation risk. The more inflation risks there are, the greater the value and demand for gold. Investors will focus their eyes on it because there is not much risk that their money will lose value.
The world economic situation.
Economic uncertainties and global crises lead investors to sell stocks because of the underperformance of bonds and thus raise the price of gold. News and specific events. Important world attacks trigger the price of gold, as it happened 5 hours after the attack on the Twin Towers Sep. 11. Facts that can produce changes in the economy on the world stock market.
Global geopolitical situations and trade tensions or wars between world-leading countries can cause significant gold rises. Political instability in Africa and the Middle East and the fall in Oil also affect the movement of investors who will seek stability in gold.
The situation of the economic crisis of the Central Banks.
In times of economic recession is when the demand for gold increases the most and its price skyrockets. Banks accumulate gold bullion reserves in order to obtain more liquidity and thus be able to lend money. On the other hand, they protect themselves to combat possible inflation.
These factors and others are, in most cases, the cause of fluctuations in the price of gold. While Russia and China struggle to increase their reserves, the US and Germany remain at the top of the list of the main countries that accumulate gold reserves with the intention of protecting their economy. Everyone knows that gold is the metal that has an upward trend in its price. Despite some fluctuations, gold is always a store of value that grows and becomes an insurance policy, in the face of an economic crisis, where large investors increase their capital and investments by acquiring as much as possible.
According to the basic principles of the economy, we have to understand that when the supply is low and the demand is high, the price automatically shoots up. In the opposite direction, it happens when the supply is high but the demand is low, then it is when the prices fall. Being aware of world political situations and possible crises that may occur in the future will be the important points to understand the market and be able to invest wisely, at the right time, buying gold at a good price and waiting for it to rise within a few years to obtain a strong profit with the operation.
Taking all these factors into account, the investor will invest in gold wisely, knowing when to buy or sell investment gold. But the next question that you ask yourself now is: Will the price of Gold rise this 2021?
The answer could be extrapolated with the factors mentioned above:
– the economic policy of the next president of the United States
– the economic wars between the US and China
– increase in interest rates of the FED
– cryptocurrencies, etc.
We leave you the ability to decide, analyze, and invest in gold.