All the recent interest in gold may be in large part attributed to the graph below. The question on everyone’s mind is whether or not they should invest in gold if they haven’t already and what the future of gold prices has in store for us.
The reason why the price for gold increased dramatically recently is because when economies around the world slow down everyone looks towards gold as a safe haven. Many countries and financial institutions store gold in the form of bullion coins or bars as a hedge against inflation or economic downturns.
That explains why during the market recession that started in 2008 and up until end of 2011 the price for gold increased by 158% as many people viewed gold as a much more stable investment than any currency and any stock option. During the recession period whether or not someone should invest in gold was a no brainer and many people that had the most basic knowledge of finance and economics made a lot of money during the recession. However, now that the economy stabilized, more or less, people are wondering what will happen to the price of gold. Since September 2011 the price has decreased 13% and people are now wondering how much gold is really worth. Was the substantial increase in price unwarranted or was should we expect these prices for gold for years to come?
Many experts on Wall Street have different theories on the future of gold. Many are painting a grim picture and predict that it will continue to go down in value over the next several months while others are painting a very bullish picture with gold prices increasing over 20% and reaching even the price of $2,000 an ounce.
Insights on Investing in Gold
As economies around the world are continuing to struggle as we have recently seen was the case with Greece, Iceland, or Cyprus and as the U.S. economy is also continuing to struggle we are going to see physical bullion remain a safe haven to investors. Physical metals are seen as a vehicle for profit as it serves an excellent hedge against inflation and many other problems.
In addition to physical bullion presenting a great investment gold miners are also worth looking at from an investment perspective. The stocks of some of the gold mining companies are very affordable at the moment compared with historical valuations. There are some gold mining companies that are doing a tremendous job in adding reserves despite the incremental number of regulations and efforts necessary to add new reserves to their portfolio. One such company in Canada that is worth mentioning is Yamana Gold Inc (TSX: YRI or NYSE: AUY), with Peter Marrone being their CEO and Chairman. Yamana Gold is a hidden gem that I’ve been keeping my eyes on for a while. Their stock price, currently standing at $13.27, is under-valued in my opinion as this mining company is aggressively adding more reserves to their portfolio and they are continuing to grow aggressively.
So despite the weak global economy why are gold prices suffering as of late? The reason is that the U.S. dollar has gained strength as many struggling European countries are seeing the U.S. dollar to be a “safe-haven” investment. Gold and the dollar are negatively correlated because gold is priced in dollars.
So the rise we’ve seen in the dollar has been accompanied by a sell-off in gold.
Now that you understand more about Gold from an investment standpoint what should you do? In my opinion gold still has room to grow as some economies in Europe such as Spain, Italy or Portugal are continuing to struggle and the debt problem that U.S. is facing is not going to go away any time soon. The decrease in gold prices is only temporary, but it will eventually increase again.