What's Up with the Price of Gold?
October 9th was the onset of a huge spike in the price of gold, climbing steadily from $1185 per ounce to $1231 on October 16th. Since then, it’s dropped back off slightly to $1223 on October 18th, where it rests today after another quick rise and fall. Overall this October, however, gold is at the highest it’s been in three months.
A great deal of speculation this summer pointed towards gold being a “no-brainer” short term investment. Thus far, that projection seems to have hit the nail on the head. But what about going forward? Let’s take a look at what drives the price of gold.
The Price of Precious Metals
One of the most popular uses of gold and silver use is commodity and future exchange. Gold and silver coins, bullion and ETF’s are purchased and traded as investments. However, gold and silver are highly volatile investments.
It seems that often times people make the mistake of investing in gold and silver as value holders. Fluctuations in gold and silver prices over the past 50 years, however, indicate this not to be true.
Over the past 16 years, the price of gold has gone from $388 per ounce to $1230. In the same time, silver has gone from $7 per ounce to $14. While these numbers seem reassuring, it’s important to note that each had significantly larger spikes in value in 2011 at $1961 and $52 per ounce, respectively.
If you’re looking for a “safe” investment, gold and silver may not be the option best suited for you. Make no mistake, gold and silver are speculative trades. Gold and silver are a limited, finite resource and used in a great number of industrial applications. Following this logic, one might think that buying gold/silver now and hanging onto it for 30 years is guaranteed to produce a high return on investment.
This strategy is often employed, yet the biggest fluctuations in gold and silver have more to do with politics than market productivity. Trust in the economy - and in world currencies as whole - has a great deal of impact on the value of gold. Generally, the more stable the global market, the less volatile the prices of gold. Conversely, in times of doubt and turmoil, the price of precious metals will often increase. Of course, this isn’t always the case. Gold and silver investments are chiefly made out of a lack of faith in the world’s fiat currencies. They’re often made as a hedge against a failing dollar or euro.
Should You Invest Going Forward
Back to where we started: what’s gold going to do going forward? We don’t have a crystal ball, but here’s what we know. A lack of faith in the Chinese stock market, as well as in the U.S. stock market is largely responsible for the recent interest in gold.
Sharp losses in these global markets and a decrease in U.S. Treasury yields has fed the demand for gold as a perceived safe haven. Until stability is seen (and most importantly, felt), this pattern will likely continue. The general rule still applies, though: buy low and sell high. While we may see gold increase in value, it’s already at a three months high. It may be worth sitting back a bit until things stabilize before moving forward.