Buying Gold: Less Risk—More Profit?
Does the purchase of gold during economic uncertainty offer a financial safety net? Some researchers say: Yes.
The price of gold is on the rise—since the beginning of 2016, the price of one ounce of gold has risen 16% to $1,270 (as of March 7). It is entirely possible that the price may rise even higher throughout the course of the year. Nevertheless, there is still a great deal of doubt about the gold market, for the following (non-comprehensive) reasons:
No one can be entirely sure exactly what factors will have the greatest effect on gold; it could easily be a combination of the above events that ultimately drives the market value in either direction. Should any of these conditions result in the reduction of the value of the dollar, gold prices will likely increase.
But is the possibility of a bull market for gold a sound reason to buy?
It could be. But that isn't the only benefit.
Gold isn’t like other commodities. When the economy suffers—when wars are declared or the global market is in flux—the value of gold often increases. According to respected economists Campbell Harvey and Claude B. Erb, the price of gold doesn't necessarily rise during periods of inflation because of inflation itself; it tends to rise when buyers flock to gold in response to fears about the value of the dollar. When people start buying gold, the demand increases, and prices rise.
Gold can act as a financial leveler—like an insurance policy against the collapse of the world economy. There might be a gold boom in the near future, but even as prices fluctuate, it will never be worthless.
Does the purchase of gold during economic uncertainty offer a financial safety net? Some researchers say: Yes.
The price of gold is on the rise—since the beginning of 2016, the price of one ounce of gold has risen 16% to $1,270 (as of March 7). It is entirely possible that the price may rise even higher throughout the course of the year. Nevertheless, there is still a great deal of doubt about the gold market, for the following (non-comprehensive) reasons:
- Market distress in China
- The decline of the price of oil
- Tension between Saudi Arabia and Iran
- The instability of the North Korean government
- Uncertainty regarding the economy of Europe
- Skittishness over the upcoming presidential elections in the U.S.
No one can be entirely sure exactly what factors will have the greatest effect on gold; it could easily be a combination of the above events that ultimately drives the market value in either direction. Should any of these conditions result in the reduction of the value of the dollar, gold prices will likely increase.
But is the possibility of a bull market for gold a sound reason to buy?
It could be. But that isn't the only benefit.
Gold isn’t like other commodities. When the economy suffers—when wars are declared or the global market is in flux—the value of gold often increases. According to respected economists Campbell Harvey and Claude B. Erb, the price of gold doesn't necessarily rise during periods of inflation because of inflation itself; it tends to rise when buyers flock to gold in response to fears about the value of the dollar. When people start buying gold, the demand increases, and prices rise.
Gold can act as a financial leveler—like an insurance policy against the collapse of the world economy. There might be a gold boom in the near future, but even as prices fluctuate, it will never be worthless.