Is It Too Late To Hop On The Gold Train? | SchiffGold

Everyone from central banks to people saving for retirement are wondering whether now is too late to buy gold or whether the recent price increases will keep going. Gold has beat the market in the last two years, and kept even with it over the last 20 years. The rise in price of the last year, however, has made gold appear to be an extremely lucrative investment. Many investment professionals have said that gold doesn’t turn a profit like a business and is inherently impossible to evaluate, because it is merely driven by investor sentiment rather than a change in its underlying true value. In reality, much of the recent increase in gold demand has been driven by an increase in its usefulness. De-dollarization has led many central banks to use gold to fill in the gap left as a medium of exchange. While the international Geopolitical factors that bumped the price of gold up are present and continuing, there is also a share of the gold price increase that is from speculators and fearful investors, which can go away at any given point. The most difficult challenge for those wanting to invest in gold today is to figure out how much of the increase in gold prices is structural, and how much is related to these shifting sentiment-based factors. While some of the price of gold can be shed if investors lose faith in the metal, the price increase from use value will be lost with much more difficulty.

Gold is near an all-time high, but most analysts are bullish on its short and long-term price. This consensus comes from the fact that the conditions that led gold to get this high have no sign of stopping. The recent all-time high would make most critical thinkers prepare for a popped bubble. Just like many other times in history, investors could be piling onto an already overbought asset. If public opinion sours on gold all at one time, it will be easier to estimate how much of the current price increase was structural, and how much of it was speculative. While it might be appealing for the public to wait before trying to buy in, the problem is finding a reliable stronghold for your money until then. While gold could potentially have a price drop in the future, keeping your money in dollars is certainly not a viable alternative. If someone knows of any asset that they can guarantee will rise in value over the next two years, they should share that information immediately with SchiffGold. However, due to the unlikeliness of this ever happening, it is important to understand the range of likely outcomes to owning gold if one were to buy it in the next few months.

This has been said many times before, but de-dollarization accounts for a large amount of the price increase of gold. Even when some signals say gold is overbought, gold orders from central banks keep increasing. The fact that gold might be slightly more expensive than ideal is not stopping the largest financial institutions in the world from buying it. They recognize that much of the price of gold increase is there to stay, and don’t believe that an imminent price drop is worth waiting for. Of course, a price drop could always happen, but the fundamental change in the volume of gold used internationally has convinced most governments that now is the time to buy, because there are plenty of nations that still haven’t satisfied their gold hunger. 

The second factor to be aware of is the recent speculative increase in gold demand. There is nothing wrong with buying gold because you think the price will continue to increase, particularly in a world where price stability is definitionally a USD price increase. However, the recent rapid price increases are far from guaranteed. Much of the rise to 3900 was paved with the excitement of investors who saw a typically stable metal start to compete in gains with dynamic equities. This was accelerated by the increase in real use value of gold, but there is much cause to suggest that much of the price increase is from a profit seeking more volatile audience that will be looking to jump out of gold at the first sign of it declining. An understanding of the reality of this upwards price pressure is necessary when deciding whether to buy gold now or wait. The price has gone up, and most agree it will continue to do so, but the speculative price increases can leave as soon as they came. Gold is in higher demand than it has been in decades, but investors must decide between the fear of a drop and the near certainty of higher institutional demand. From a longer historical perspective, gold maintains its value. Whether it decreases in price or continues its ascent, 20 years from now, it will brutally outperform the dollar unless radical institutional change takes place. 

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