If you take a look at a 10-year gold investment chart, you’ll see a wave that any long-term investor would have wanted to ride. The golden wave started its upward surge in 2001, when gold was valued at $270 an ounce. In eight years, that price has risen steadily to $950 an ounce.
What happened? Why is gold’s value so high?
Part of the reason: uncertainty. Gold is unique. It’s not used as legal tender by any government, making it immune to the effects of political unrest and/or economic instability. In general, the more worried investors are about political and economic events, the more likely they are to grab onto something solid, like gold.
Is gold a viable investment today?
Some advisers say gold could still be considered a safe investment, especially long-term. But remember that history is littered with gold rushes and crashes.
Investors who bought into the gold rush at the beginning of the new millennium have realized tremendous gains. But investors looking for a safe harbor, who bought in during the last year, have garnered only small profits and even taken some losses. At the tail end of 2008, gold dropped to $700 an ounce, before rebounding to the $950 range.
Many precious-metals investors believe their stake in the gold market will offset losses in other areas of their portfolios because of rising interest rates, lagging growth and the threat of inflation. Since cost of living increases usually mean higher gold prices, their belief is not unfounded.
But the wise words of Sir Isaac Newton bear some heeding. Relatively speaking, what goes up, must come down. Let’s not forget the gold bubble of 1980 when prices shot up to $850 an ounce and then plummeted like an ingot dropped from a cliff and stayed low for decades. World events, high inflation and oil prices were blamed then for the spike, and subsequent fall, in the value of gold.
Should investors try to catch the steady wave of increasing gold prices? Some investment advisors believe the price has already crested, but will continue to hold steady … with small, incremental rises. Others feel the golden ship has sailed and are advising their clients to steer clear.
As with any investment, you take the risk. The key is to avoid a crash and being dragged out by the undertow. Scrutinize market trends and events affecting the market as a whole, in particular, the overall stability of the economy. People are likely to hold onto gold until they feel more secure investing in something else. If you think things will grow more unstable and uncertain, then you’ll probably feel more comfortable buying. If you think the worst of the economy is over and things will pick up, you’ll feel more comfortable avoiding the golden wave.