Should I Buy Gold in 2020? Is Gold a Good Investment? If I Buy Gold, How Much Should I Purchase? Will Investing in Gold Make Me Rich?
As of today, August 3, 2020; the price of gold per ounce is $1,982.07. With the economy as volatile as it is and business owners facing another round of uncertainty, the answer as to whether or not right now is the best time to purchase gold isn’t so clear.
While financial advisors highly suggest keeping gold a part of your portfolio, investors right now are saying to halt any purchase of gold during economic uncertainty. And here’s why:
- Gold, along with precious metals in general, have their own history of being volatile and prone to material price swings.
- The true benefit gold offers to investors is diversity. Gold is not a get-rich-quick solution and as stated above; due to the volatility of it, should never be.
- Cash right now is your best bet. While cash today isn’t increasing much with our low-interest-rate environment (and inflation will significantly depreciate the value of cash); but you will still be protected by it if the stock market crashes significantly. Cash is your safety net.
- With the rumor of heading into a bear market (thanks Bloomberg), we’re wondering if investors are buying more rapidly because of that. Now, it’s important to notate that with both the S&P 500 and the price of gold heading in an upward trajectory; things don’t necessarily seem to be fitting within the comfort of our safety nets.
- The reality is, as quickly as the price of gold has risen; chances are, it’ll plummet just as quickly.
As seen in the chart above, gold prices are experiencing a new high for the first time since 2011 where prices were exceeding $1,900/oz on September 5, 2011. And here’s what analysts are saying about this today:
In a historical sense, rising gold prices often signal economic difficulties on the horizon. Think of it as a “canary in a coal mine” scenario where individual investors worry their dollars will buy less. Their reaction to exchange hard currency for hard assets are triggered as they watch commodity prices rise.
It’s then that foreign central banks who have large holdings in dollar-denominated debt begin to demand higher interest rates to compensate for their losses. Their reaction is often to trade off dollars to buy gold, which puts upward pressure on gold and metals as the value of the dollar declines.
As dollar holders lose faith in currency, a long-term vicious cycle takes hold and, if the cycle continues, it becomes likely that fewer and fewer investors are willing to hold on to dollars at all. That’s the textbook definition of “hyperinflation.”
We mentioned earlier, gold offers investors portfolio diversity which is good. In fact, those that had gold in their portfolios were better off during the period between 1989-2009.
The reality is this: when it comes to forecasting asset prices like gold or other precious metals, it’s not easy, and investors need to be cautious.
Since there is more confusion surrounding economic growth, especially from Covid-19 (sorry), if we continue to see low-interest rates; gold prices have a high chance of rising. In other words, the more negative economic feedback we receive, the greater the chances are that gold prices will increase.
However, if the stock markets start to fall again, and if we are truly headed towards a bear market scenario, investors could benefit by selling off their gold and other commodities in order to provide a buffer of finance for some other losses their assets might face. Doing so could create a downward pressure and force gold prices to drop.
Referring to the chart above, where we faced more of a bull-market scenario in 2011; if somehow a viable vaccine for Covid-19 surfaces, and if by chance the US dollar strengthens, gold prices could move in the opposite direction, once again being a positive commodity to add into portfolios.
We’ve often in my articles, referred to times of uncertainty and chaos. And while we know we sound redundant, we can’t help but reiterate the truth behind that.
After doing several hours of research, having conversations with fellow financial advisors, financial analysts, and economists I find the best answer when it comes to purchasing gold and other commodities at this time is – don’t.
Protect the assets you currently have in your portfolio. We don’t know what direction our market is going in, we don’t know how we’re going to rebound from from the impending recession we’re facing.
In a time where there is encouragement to invest in the stock market, we’re saying take a pause and consider selling some of your commodities so that you and your loved ones can be protected from what’s yet to come.