There’s more to this shiny metal than you might think.
What Influences the Prices of Gold
For thousands of years—even before it was used as currency—gold has been a symbol of wealth. Because it maintains or increases its value over time and has been a sort of insurance during economic downturns, it has been an appealing investment.
Unlike other investments, gold prices are not influenced by interest rate decisions. Typically, they are inversely related to the value of the U.S. dollar. A weaker value of the dollar means that the price of gold skyrockets due to increasing demand; more gold can be bought with a weaker dollar. On the other hand, with a strong U.S. dollar, the price of gold is lower and less volatile. Gold is not exempt from supply and demand either. Worldwide jewelry and industrial demand also influence gold prices, as do central bank reserves and government vaults. Another factor to consider: supplies of gold are commonly affected by mining, as this is what contributes to the supply of gold. Therefore, a good choice for investing in gold is mining companies.
Despite the varying factors that influence gold prices, its value usually doesn’t dramatically depreciate; on the contrary, the price of gold has been on the rise these past 50 years.
Why 2020 is Different
Perhaps the most prevalent influencer of gold prices this year is its unique characteristic of wealth protection. In times of economic downturns or uncertainty such as a recession, people turn to investing in gold as a sort of safe-haven. Gold is often used as a hedge to protect against currency devaluation or inflation during these times of economic uncertainty.
If anything, 2020 has definitely been one of those economically turbulent times. With the coronavirus pandemic, many were worried about the global economy taking a turn for the worse. This drove gold prices to shoot up as more and more people chose to invest in gold to protect their wealth, just in case long-lasting, negative economic effects were to take place.
Along with the pandemic, this year’s presidential election has majorly impacted the price of gold. The uncertainty of the election outcome and the future years under a new president have caused gold to increase in price. Significant political shifts such as these bring forth economic uncertainty, which is why many seek gold as a hedge, upping its price.
What Experts Are Saying
If the coronavirus-induced financial uncertainty ensues into the end of 2020 and through 2021, gold could be a good investment. When the stock market crashed, gold prices were higher than they ever were since 2012. In August, gold had catapulted to an all-time high of $2,075 per ounce. Perhaps with continuing economic turbulence, the price of gold will continue to increase.
Of course, past performance is not an indicator of future performance. There is no certainty in investing in gold, although predictions for its performance in the following months seem to be strong. In the right circumstances, it could be a good investment to add to your portfolio. It is worth researching gold price charts to analyze gold’s activity in the past. Additionally, gold price charts could show patterns in gold’s prices throughout past years. Looking into gold history will help you with your investment decisions.
As with any investments, be sure to extensively research what you are seeking to invest in. Investing can be risky, but gold can be a great addition to your portfolio and a great allocation of your liquid assets.