Gold has quietly been hitting historic highs. Yet, the majority of investors seem to be missing any indication something is wrong with the economy. Furthermore, investing in stocks has continued to buoy the stock market.
As I recently wrote, “I have never been more concerned about the fundamentals of the US and global economies than I am right now.”
With over eighteen years’ experience as both a financial advisor and manager supervising the investment of billions of dollars in client assets, I have learned to keep a constant eye on the spot price of gold.
When gold increases significantly, investors need to take notice; gold rises during times of economic uncertainty and as such, it is a good gauge to measure fear in the stock market. However, in contrast to this increase in fear, the average investor continues to drive stocks unsustainably higher.
Therefore, when the stock market starts to fall, it is going to crash precipitously because the initial downward move will capitalize on the fear that already exists among investors and turn it into sheer panic.
It is anyone’s guess when this will happen, but I would expect either this coming fourth quarter or the first quarter of next year the stock market will crash.
I do not know the peak gold price, but I do know the price of gold will increase.
Here are three reasons why gold is going higher:
1. Recession and Uncertain Financial Markets
During stock market crashes, recessions, and economic hardships gold increases in price because investors flock to purchase gold. From an historic perspective, as stated in an article by thebalance.com,
“Gold prices reveal the true state of U.S. economic health. When gold prices are high, that signals the economy is not healthy. Investors buy gold as protection from either an economic crisis or inflation. Low gold prices mean the economy is healthy — making stocks, bonds, or real estate more profitable investments.
…The price of gold went from $20.67 an ounce in 1929 to $35 an ounce in 1934. The Federal Reserve was trying to maintain the gold standard as the economy continued to worsen. That contributed to the Great Depression, sparked by the stock market crash of 1929 and multiple bank failures.
On September 5, 2011, gold reached its record high of $1,895 per ounce. A weak jobs report, ongoing Eurozone debt crisis, and lingering uncertainty over the U.S. debt ceiling caused prices to nearly double from $1,000 an ounce in 2009.
In July, investors worried that Congress wouldn’t raise the debt ceiling in time. Without the ability to issue new debt, the federal government might have defaulted on its debt.
In September 2009, gold was trading near its all-time high of $1,032. As the dollar declined, many wondered whether it was a good time to buy gold. It was, if you had a crystal ball and could see into the future.”
Furthermore, we are currently in a global recession, so there will not be a quick economic turnaround driven by any one country. This is a deep economic recession affecting not just the United States, but the entire world.
Every scared investor across the globe is going to buy gold.
2. Inflation Due to Governments Printing Money
Governments around the globe are printing money to stimulate their economies as a result of the coronavirus pandemic. As we know here in the United States, the US government is printing trillions of dollars.
When more money is printed, it has the effect of decreasing the value of the currency: the result is inflation.
Inflation will not spike overnight, it will trickle through the financial system over a couple of years resulting in a systematic increase. Typically, when inflation starts to creep into the economy, The Federal Reserve starts to raise rates to fight inflation.
Gold increases in value when there is inflation. This inflationary pressure will push gold higher.
3. Gold Supply and Demand
As more and more people are investing in gold due to the uncertainty of the financial markets around the world and global inflationary environment, the law of supply and demand will further increase the price of gold.
Gold is a relatively rare commodity. Most people would be surprised to learn, “All of the gold discovered thus far would fit in a cube that is 28 meters wide on every side” per the United States Geological Survey.
Gold mining and production is an expensive and risky business. As such it takes a long time to go from discovering gold to pulling a sizeable amount of gold out of the ground. Per the World Gold Council,
“Gold mining and mine production does not respond quickly to prices. The project development timeline and mine lifecycle is a very long one — it often takes decades to move from discovery to production.”
In other words, an increase in the demand for gold cannot be quickly met just by producing more gold. Therefore, gold prices will increase substantially as the demand for gold rises.
Investing in Gold
How can investors best capitalize on the rising price of gold?
Investing in gold is tricky and best left to gold experts.
With all my knowledge and over eighteen years of experience investing money for clients, I know the value of having an experienced gold representative to make appropriate, individualized investment recommendations.
For this reason, whenever my clients want to buy gold I refer them to the following company (this is my affiliate link so I receive compensation when my clients or someone else uses this link):
Gold is going higher; the best time to invest in gold is right now.
Disclaimer: This article was written solely based upon my opinion for informational purposes only, therefore, it should not be considered Financial or Legal Advice. Please consult with a financial professional before making any major financial decisions.