Should I consider investing in gold now? Is it better to stick to other investments that I am conversant with or should I take the time to find out what lies in store for me? Such are the questions that anyone who has recently heard about gold investments is likely to be asking themselves. If you also have the same questions in mind, then you are in the right place today because I will present you with information that will help you decide on the way forward. Read on to find out more about timing when it comes to gold investments.
When to invest in gold?
According to John Templeton, a globally recognized investor, the best time to purchase an asset is when there is “maximum pessimism”, and the most appropriate time to sell is when there is “maximum pessimism”.
This approach to investing often requires the nerves of steel, but those who execute it in the right manner are often rewarded handsomely. The main task is usually to find the right opportunity and to seize it. Such contrarian investing has been part of many investors’ strategies and is one that you can possibly consider executing on the go.
Gold is, at the moment, a contrarian investment. This shiny metal has not gotten sufficient attention from many people worldwide, more so in its capacity as an investment asset. By the look of things, gold is yet to maximize its full potential, and this is a clear reflection of pessimism accorded to this precious metal.
In June 2021, an investor needed about 2.5 ounces of gold to purchase one share of the S&P 500. Back in September 2011, 0.67 ounces of gold were enough to get you one share of the S&P 500.
The clear indication here is that gold is quite undervalued and that not many people seem to be paying attention to it right now. This could be a case of “maximum” pessimism”, since all the factors that are supposed to drive the price of gold are all in play. Let’s look at these factors.
The record printing of paper currency
Over the last one and half years, central banks have done everything in their power to prop up their nations’ economies. That has included the printing of money at a record pace, to resuscitate the dying economies, as a result of the occurrence of major events on the global stage. Unfortunately, the record printing of money has contributed to the dilution of the purchasing power of the local currencies.
Reckon this: a quarter of all the dollars in the U.S. that are currently in circulation have been printed since January 2020. The amount of damage that such a move has done on the U.S. dollar is unfathomable.
Gold & cryptocurrencies
Such actions by the central banks have triggered massive interest in cryptocurrencies. It is known that cryptocurrencies are decentralized currencies that do not present third-party risk. This simply means that no central banker can wake up one day and decide to create millions or billions of cryptocurrencies out of thin air.
The same view is held for gold. The supply of gold is naturally limited by the failure of exploration companies to make new discoveries, and the reluctance of mining companies to spend more money to develop mines.
Whereas gold and cryptocurrencies are perfect alternatives to the US dollar, gold holds one advantage over cryptos – several decades’ worth of data that reveals the relationship that this shiny metal has with the amount of money in circulation. One thing is clear from the data, that as the value of the U.S. dollar decreases owing to the fast pace of money printing, the price of gold always rises. This is exactly what has happened in the recent past, and during economic crises such as the 2008 crisis.
If the world continues experiencing different types of crises (they are bound to happen anyway), then the central banks will be obligated to rescue the economies from time to time, by printing more money. Such a policy will single-handedly lead to a significant increase in the price of gold.
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Inflation is on the rise
In May 2021, the consumer price index went up by 5% in a single month. This was the highest rate recorded since August 2008. A look at the industry-specific price indexes, however, has a more interesting story to tell. The price of used cars and trucks has increased by more than 30% since 2020. Some pre-owned vehicles have actually been sold for more than their original purchase prices.
Home prices have also been on the rise, with the fastest year-over-year increase being recorded in April 2021. The 14.5% increase was way higher than what was previously viewed as the record rate (September 2005).
The Fed has managed to calm the masses by referring to fast-rising inflation as “transitory”. Analysts at the Bank of America, however, believe that commodity prices could stay elevated for the next two to four years. Unless a major financial crisis occurs, the central banks are highly unlikely to increase the rates in about half a year to bring down the rate of inflation. There’s actually a 100% chance that the rates will stay near zero until the end of 2021.
I can’t really say that “maximum pessimism’ is to blame for the slow acceptance of gold, but one thing is certain- the relationship between gold and paper currency is a reality.
The level of uncertainty in the global economy is quite high, and this when fueled by geopolitical tensions between global superpowers is a perfect recipe for the decline in value of most paper assets.
If you have had investments during a major economic crisis, then you do understand that one crisis is enough to milk you dry of all the hope that you had for financial success. It, unfortunately, takes several years to make a full recovery from such losses.
The knowledge that as the U.S dollar declines (along with paper assets), the price of gold increases should trigger some action in the form of diversification to every investor who wants to secure their financial future.
Take the first step today and invest in gold, by reaching out to any of the recommended companies below (they offer free education):
That will be all for this article in which we have answered the question “Should I consider investing in gold now?”. I bet you now have the answers to this question, and that you can now make an informed decision about this. Let me know what your thoughts are about gold investments and whether you would need help getting started.
I wish you well,
Eric, Investor and Team Member at Gold Retired!