Gold is trading near its all-time high of $1,032. As the dollar declines, many readers wonder whether now is a good time to buy gold.
Many investors think of gold as a good hedge against a declining dollar. Since many investors believe this, it has become a self-fulfilling prophecy. Gold prices can rise when the dollar declines. However, most financial planners will tell you that you should have no more than 10% of your assets in gold.
What It Means to You
The best time to buy gold is when stock prices fall, not when they are rising as they are now. Research from Trinity College showed that, over time, gold's value increases the most for 15 days after a stock market crash. That's because panicked investors sell their stocks, and buy gold. However, sell the gold before the 15 days are up. After that, gold returns to its normal value.
| 
(Photo Credit: David McNew /Getty Images)
Comments
Investing in gold is not for the faint of heart. In the first place many non-professional investors tend to enter the market rather late when prices have already risen to historically high levels. Second, the physical supply of gold is relatively inelastic in the short term with regard to price. This makes the market both thin and volatile when demand grows sharply. Above a certain threshold, gold can quickly become a bubble and when the bubble bursts a non-professional investor can lose a bundle. Because of the above characteristics, the gold market is most appropriate for arbitrageurs who can take advantage of short-term price changes regardless of the level of the price of the metal. The “average” investor can find him/herself at the mercy of the arbitrage. If you want to sleep well at night, putting a substantial portion of your portfolio into gold is not the way to do it.
As to Jim’s comment, in the short term, gold, as with most other commodities, is volatile. Its price can swing quite dramatically as you know. However, it is not the short term that concerns me, but the long term. The long-term (100-year) rise in the price of gold is due to the declining value of the U.S. dollar, in which gold is priced. Ever increasing debt issuances by the Treasury and expanding money supply by the Fed are making dollars as abundant as the sand on the seashore, thus decreasing its value. Since gold is priced in dollars, and dollars are continuing to decline, gold has nowhere to go but up. So until the Treasury and Fed decide to cease and desist their dollar-proliferation program, my money is on gold.
Nice article. It’s really a hard decision to either sell or keep since some people are hoping to sell when gold reaches 2k. However for people who are in a bind and need money fast your right, selling now can really bring in a good profit. I’ve seen some people make more than they bought their stuff for and other sell it for pennies on the dollar because they send it to the wrong guys. I advise anyone wanting to sell their gold to check out reviews and the BBB first at http://www.goldvox.com.
Thanks for the compliment. Since this article posted, gold has risen to new heights. It is at $1,063 right now. Will it keep going up? Probably, but will it reach $2,000? No one knows.
This is what we will see in the new normal…incredible volatility. The old solid investments – stock market, real estate – are no longer safe bets, so investors will stampede from asset to asset, trying to stay ahead of the herd. As Jim said, it is not for the faint of heart.
Kimberly
Gold at $3,400 an ounce.
Well, i bought 50 grams just for the thrill in November, and now the value is dropping, but i look at the value graphics of the past 20 years, and the only way i see it going is UP!!
Unless, of course, the dollar strengthens, or the stock market improves, or the investors all decide to move to another asset class.
Why Gold? Why Now?
The Case for Investing in Gold Today.
IF YOU’RE LOOKING to store wealth in something both rare and secure today, you will find nothing to match gold.
Gold always tends to reward cautious savers in times of financial stress, because it is both hard to destroy and tightly supplied.
In short, it is the very opposite of debt.
Gold doesn’t corrode or tarnish, and it’s relatively useless to industry. That’s why almost all of the entire stock of gold mined over the last 4,000 years remains unused today. It exists as either jewelry or bullion, both of which act to store wealth and value.
The world’s total store of gold now stands near 160,000 tonnes. But the metal is so dense that, if formed into a single a cube, it would have an edge barely 22 yards in length.
That wouldn’t even cover a tennis court!
Time to Buy Gold?
Gold doesn’t care whether a financial collapse destroys the value of money (inflation) or the value of debt (deflation). Its unique characteristics — indestructibility and tight supply — mean its owners can thrive amid either.
But that doesn’t make gold a “forever” investment. Gold will always lose value during stable periods of strong economic growth.