Gold is indeed a unique investment in the commodities game. It has historically been the place many investors go to hide when they think there is trouble looming in the market. Gold has also been historically held to minimum value for the most part as well just until such volatility happens. The market crash of 2007 is a prime example, as gold prices hit a record high at that time. It is currently trading around $1500, and has been on a relatively steady include since 2013. However, the price at the current time could be a deterrent for new investors considering purchasing gold as a hedge unless they expect significant volatility in the near future. This possibility is where the problems lie regarding gold investments.
The Stock Market Bubble
One of the first considerations for those looking at investing in gold as a safety net is looking at how the stock market has grown since the benchmark of 10,000 was hit several years ago. This level was once unthinkable for many investment professionals. The market has continued to rise consistently since that time with a few hiccups along the way, which were natural corrections in the eyes of many economists. There are still many who feel that way today. The expanding stock market could actually be set for a major correction in the near future, which could cause gold to skyrocket in the right environment. Those who have held gold since the 2007 crash are just along for the ride, but those who have abstained from gold investment may be thinking it is a good time for gold prices even at the inflated rate because of what could come naturally in the market.
Another problem that may be in the offing is the volatility associated with the global trade agreements being negotiated currently. The Trump Administration has taken the stance that individual national agreements are best, and a reelection of the administration could mean more of the same. This is especially true regarding the China debacle, which is very complicated just in and of itself. China’s entrance into the World Trade Organization has interlocked our economies comprehensively, and Trump has recently stated that China wants some drastic shifts in exchange for ceasing the pegging of their currency to the U.S. dollar. This could lead to deflation, which in turn could cause gold values to increase. In addition, the bickering with the Federal Reserve Bank regarding interest rates is also an issue that impacts the value of gold. Cheap money has been available throughout the quantitative easing “experiment” during the Obama Administration. Investors want stability in addition to cheap money, and stability is not necessarily present at the time because of the unknowns between the Fed and the Trump Administration.
There are many investment professionals who say that investing in gold beyond a hedge in case of a major problem in the market makes very little sense. The real profit is made in the stock market, as gold values have historically not been conducive to major profit taking for the most part. It is just a stable investment form that serves as insurance. Many of these economists are actually saying purchasing gold coins makes more sense than investing heavily in gold securities. In addition, inventories could be problematic, as the true inventories regarding gold supplies are not exactly a known quantity. The cost of gold mining with respect to the reported production could also be an issue as the cost of gold mining continues to increase significantly. Shifts in the global economy that may include gold as partial backing for the U.S. dollar in a shift away from total petrodollar backing could also impact gold values as well, potentially sending prices through the roof.
One thing is for certain with respect to investing in the current stock market environment. The United States and the global economy as well are in uncharted territory with respect to stock market values. And gold is widely considered the anchor to the entire system. Sovereign nations and central banks are buying gold in record amounts, and all investors are watching closely even if they are necessarily ready to jump on to the bandwagon. There are surely many investment gurus who are saying now is the time to get in because the ground floor is set to go even higher and that could begin in the very near future.