Not all that glitters is gold. Currently, gold is glimmering like it has not done for some time. Why is gold in such demand for investors right now? We’ll share a few reasons for gold’s ‘hotness.’ Some are historical, while others align closely with the uncertainty brought by the COVID-19 pandemic.
After looking at the new gold rush and its driving factors, as well as gold’s potential to rise, you may be wondering if it’s an opportune time to buy gold. We’ll delve into the timing and talk about how to invest in gold.
If you’re ready to add some gold to your portfolio of investments, we can help you secure that shine. But first, let’s talk about gold’s ups and downs.
Why is Gold Such a Hot Investment Right Now?
Summer is traditionally a sizzling time in the U.S. This summer, as temperatures have risen, so have gold prices. Why is gold so appealing at this particular time?
Amidst COVID-19, we’re seeing a summer that’s not quite like any other. Many of us are more than a little nostalgic for the more carefree feel of summers past. When talking about gold prices, it’s like we’ve taken a trip back in time to 2011, which is the last time gold surpassed the milestone of $1,800 per ounce. In less than six months, gold prices have shot up more than 30%.
While uncertainty over work, school, and daily life as a result of COVID-19 has put people on edge, it’s this same uncertainty that’s making gold shine. For thousands of years, during periods of uncertainty, gold has been a safe bet.
Throughout history, gold possessed a certain glamour and allure. For years, it’s been coveted and hoarded all over the world. Despite having little in common with pirates and pillagers, modern investors feel gold’s allure and its glistening adventure.
Additionally, gold’s value holds its own–without the need for support from any financial agency or government entity. Unlike typical cash, coins, or credit cards, the precious metal is both lovely and long-lasting. Somehow, the financial value passed along through a smartphone cash app lacks the same panache as that held by a bar of gold.
Also, gold crosses borders and political divides; its value is acknowledged and accepted around the globe. This doesn’t mean that you’ll travel with a wallet or purse full of gold, but there’s a level of comfort knowing that the gold in your portfolio has worth, wherever you are.
Gold makes people feel secure, particularly in bad times. That feeling of security comes with historical precedent. While the precious metal has had its ups and downs, it has been a safe investment for eons.
What’s Driving This Gold Rush?
At the beginning of August 2020, gold reached stunning new heights–coming in at more than $2,000 per ounce. This rapid rise represents gold’s most significant gain in ten years.
How did we get here? Why is gold on such a high right now?
President Franklin D. Roosevelt removed the United States from the gold standard in 1933. Until then, cash in the U.S. Treasury backed all cash by gold. In an effort to confront an economic downturn and inflate the money supply, Roosevelt directed Americans to turn in their gold to the Federal Reserve in exchange for $20.67 an ounce.
In 1934, the Federal Reserve raised the price of gold to $35 an ounce. By raising the price, the Federal Reserve also increased the value of the gold in its possession by almost 70%. This action, in turn, gave the Reserve the power to inflate the supply of money in the United States Treasury.
In 1971, President Richard M. Nixon declared the end of the conversion of cash to gold at a fixed rate. Then, in 1974, President Gerald Ford signed a law that allows individuals in the country to own gold bullion again. The price of gold took off over the decade, hitting $850 per ounce—a staggering increase of more than 2,300%.
However, with the great tech bust in the stock market, gold prices dropped over the next two decades, bottoming out in 2001. The federal government acted to shore up the stock market. Riding to the rescue once again during the 2008 financial crisis, the government started printing money, seemingly by magic, to save the economy and the stock market.
Now, it’s 2020. Once again, the U.S. is a nation in crisis, this time due to COVID-19. The government is once again printing and injecting money into the economy, pushing the price of gold higher. As gold’s popularity continues to rise, the value of the dollar is likely to fall. Perhaps, a new modern gold rush is here.
Will Gold Prices Go Up Or Down In The Future?
After recently reaching record heights of $2,075 per ounce on August 7, gold saw another record four days later. On Tuesday, August 11, the precious metal was subject to its largest single-day drop in the last seven years. Gold is supposed to be a safe bet—a beacon of uncertainty in uncertain times. What gives?
With all of this talk of record highs and sudden drops, gold seems less like a safety net and more like an out of control roller coaster. However, don’t avoid gold’s wild ride just yet as it might enjoy this high and gain stability where it stands.
One good sign for gold is that interest rates in the U.S. are currently low. As the government reduces interest rates to battle economic fallout from the pandemic, gold gains power.
Since gold doesn’t generate interest income, investors can hang on without the risk of losing that income.
Another good sign is the falling value of the dollar; bad for the dollar, good for gold.
As the dollar weakens, gold’s value and allure grow. Even as investors cross their fingers for a second stimulus package boost, the dollar has not improved.
With a presidential election only months away and the shaky relations with China, the only certainty is uncertainty. As economies increase inflation, gold investors are likely poised to benefit.
A definite answer to whether the price of gold will rise or fall is nearly impossible. If there’s one thing we’ve learned from 2020, it’s that anything can happen.
Still, the forecast for gold looks positive. One expert predicts that gold will reach $4,000 per ounce, while other predictions fall in the slightly more conservative $2,000 to $3,000 per ounce range.
Investors have regarded gold as a safe financial haven for eons, and while the precious metal may fluctuate, it’ll likely perform better than stocks and bonds. Gold is and will continue to be a solid investment.
Should I Buy Gold Now or Wait?
When everything around us economically seems to be falling apart, gold stands solid, shiny, and safe.
People have valued gold for thousands of years. Though it can experience rapid highs and lows, gold tends to be a good investment over time. When the economy and the investor’s confidence fall, the price of gold goes up due to its reputation as a safer bet than the stock market.
Still, there are a few factors you should consider If you’re thinking about investing in gold.
- The development of an effective COVID-19 vaccine could give the market a more optimistic outlook, with gold falling behind.
- If unemployment remains high and the government debt levels increase, so will inflation. This will push gold prices higher.
- Downward pressure on the dollar means there’s still room for gold prices to rise.
- Other than gold itself, you can invest in gold stocks or ETFs. Thus, you don’t need to buy a velvet bag of high-quality gold.
Should you buy gold now or wait? As with many investment questions, the answer is a personal one that depends on many different factors. Ultimately, gold is an excellent choice to be a part of a diversified portfolio of investments curated to reduce your overall risk.
One way to diversify is to choose investments that are not closely correlated. For the last 50 years, gold and the stock market have not shown a close correlation. As the stock market sank, gold rose—and vice-versa.
Over the short-term, gold’s shine is rivaled only by its volatility. The value of the precious metal is fickle, with its price rising as the value of surrounding paper investments, stocks, and bonds fall.
Before deciding on any investment, be sure to examine your existing portfolio and your goals. In these unprecedented times, if you can wait for time to tell, it’s a good time to put some gold in your portfolio.
Some Final Thoughts on Gold
We started out asking the question, “Why is gold so hot right now?” History tells us that bad times heighten gold’s luster. While bad times don’t last forever, gold does; at least it has for centuries.
Despite the fact that gold’s value is certainly subject to change—and perhaps will change rapidly—it’s a solid, long-term investment, especially when part of a diversified portfolio. So, if you’re looking for some diversified investments in your portfolio, add a little golden glitter.
Chris Muller is a small business owner who started a digital marketing business that focuses on freelance writing, content marketing, and SEO — all while working full-time and playing dad to two kids.