Gold as an asset is viewed as less volatile and risky than most other types of investments. It is an asset that helps mitigate portfolio risks during economic downturns, and gold can also help hedge against inflation.
Demand for gold heightens during economic uncertainty, especially when inflation kicks into high gear. This demand is reflected in gold prices for short periods. The biggest long-term driver of gold prices is job income growth. The expansion of the middle class globally has also had a major impact on the demand for gold.
Gold has outperformed quite a few asset classes over the years. Investors feel safe investing in gold for that reason as well.
Gold is always fashionable, too. Due to economic uncertainty in 2020, gold was a hot topic. Out of all the most common metals on Earth, gold is one of the most scarce. Thanks to gold prices, ETFs tied to the precious metal were dishing out serious returns this past year.
Just in the past year alone, gold ETFs on average produced a 26 percent return. In March alone, average returns for gold funds were above 11 percent.
Gold has done especially well over the last couple of years as a whole, too. What about those historic highs of 2011? What factors could play a big role in gold prices moving forward into the future?
A reemergence of Covid 19 and uncertainty about the world’s economic climate are possible drivers of gold prices. The value of the US dollar and US/China relations also play their parts. Interest rates and inflation are also common drivers of the gold market. There are quite a few other factors, too, including overprinting money.
News related to the Coronavirus represents uncertain times when it comes to predicting the gold market. Headlines about Covid variants tend to hinder the broader market but boost gold prices. Any global news hampering the economy is going to find investors singling out gold as a means for producing returns during uneasy times. While a repeat pandemic is likely not in the cards, uncertain economic times are always right around the corner.
Instead of focusing on buying gold during uncertain economic times and selling gold during times of increased economic growth, the best solution is to allocate a certain percentage of portfolio funds for gold investments over the long term. Investors that attempt to buy and sell gold are timing the market according to their emotions and what’s in the news. These investors are much more likely to buy and sell gold with larger amounts of money vs allocating a certain percentage of funds. This is not the way to invest in commodities to achieve wealth. Leave the buying and selling gold to the investors who are already wealthy.
The value of the US dollar has everything to do with gold prices. When the dollar weakens, the gold market does quite well. The dollar has certainly been weakening this year, a trend that is easily noticeable and almost mappable.
Tensions between US and China were driving gold prices up ahead of the pandemic. With a Democratic president in office now, however, tensions between US and China have lessened. While that is true, China and the US traditionally have a volatile relationship that flares up from time to time. This keeps that force in play helping to drive gold prices up on occasion.
The US and other countries are printing money at a record pace, too. This may boost the economies of countries throughout the world, but it also puts inflation into overdrive. Gold plays well with inflation, and this type of scenario is what is currently playing out within the global economy. Both inflation and overprinting money are two of the biggest drivers of gold prices.
Gold mining and gold reserves are also driving factors. Currently, countries are not selling gold reserves to make economic ends meet. Quite a few countries are increasing their gold holdings ( https://www.gold.org/goldhub/data/monthly-central-bank-statistics . What this means is there isn’t much pressure pushing gold prices downward.
Investment experts suggest that people allocate about 5 to 10 percent of their portfolio funds for gold investing. There are quite a few choices when it comes to investing in gold.
Investors can choose from sovereign gold bonds, gold bullion, gold ETFs, gold futures, collectible coins, and more. There is even a gold ETN that pays dividends on the premiums made from writing covered calls on a popular gold ETF that tracks the price of the precious metal.
It’s also a good idea to work with a company that specializes in tax advantaged gold investing. If you are looking to learn more about this method then you might want to read this Goldstar Trust review. We found it helpful in learning about gold IRA’s and how to roll over a portion of a 401k into precious metals.
Final Thoughts
Every investor needs to identify a timeframe when making investment decisions. Market research is also highly important as each investor is responsible for his or her due diligence. Just like with securities, gold is not a guarantee. The price of this precious metal fluctuates quite often based on a variety of global economic factors. Diversity is your friend as an investor, and it’s important right now to take the time to evaluate your standing with precious metals. Is your portfolio lacking?