Everybody in Maine wants to buy gold at its cheapest before the next big spike, and now is getting very close to that time.
Gold has been taking a consistent slide since it majorly corrected as the GFC panic started to subside. Gold’s value had been over valued as people wanted to move to a “safe haven” and that generated an over buying market and rapidly increasing prices.
Once the over buying had stopped and prices corrected, many large organizations continued to buy gold. Russia, China, and India being notable major governments that have massively increased their gold holdings, but also major banks have increased their gold reserves. So prices never returned to the pre GFC price levels pre 2006.
However through 2015 gold has continued to steadily drop, with many saying that investing in gold is dead. Even as the Syrian conflict and refugee crisis grew, gold continued to decline. These world events tend to increase gold’s value. So what has been happening?
During 2015 the US has shown strong signs of having recovered from the GFC. Major economies like Germany have also seen economic growth and drops in unemployment. This has drawn people back out of gold and into the more dynamic stock markets. So even though there has been demand from governments and banking institutions, the global economic conditions have been rosy and investors are less interested in precious metals.
Also, while not confirmed, Russia may have had to slow or stop its accumulation of gold to fund the military conflicts it was getting involved in, and its large loss of income due to the drop in oil prices. Additionally China has seen some significant economic volatility with repeated large stock market crashes which required the central government to step in to curb the downward spiral. The aftershocks have been felt around the world with significant reduction in Chinese investors in the real-estate and business acquisition markets.
These three factors could be resulting in the continued slide of gold prices.
So why buy gold if prices are dropping?
Because in the future gold demand is likely to increase and the price will go up. However it is not quite bottom yet in terms of US dollars. The financial world has been waiting for the US Federal reserve to increase interest rates. When this does finally happen the “value” of the US dollar will increase and hence the buying power. If you want to buy gold in US dollars, gold will continue to get cheaper after the interest rate increases. In other currencies this might signal the opportunity to buy as the media will keep reporting that gold is worthless.
If the Fed sees the US economy in such good shape then increasing interest rates surely means the good times will keep rolling right and nobody will want gold? Well on the flip side why have they been holding off for the entire second half of 2015? US Government debt is the big answer. While the US economy has been recovering the US Government has continued to amass debt while other governments have been amassing gold! If interest rates increase and the value of the dollar goes up, buying Government bonds (debt) will become expensive in foreign currencies and hence less attractive to international entities. As a result refinancing this record debt will become more expensive for the government than any small increase from the FED might suggest.
So what will they have to do? Increase taxes? Decrease spending? Quite a bit of both? This is going to slash the amount of money moving around in the US economy so they can try and control their spiraling debt better.
To say the US economy is going to be balancing on a knife’s edge for the rest of the decade is an understatement. The recent strong stock market performances will start to slow and returns decrease meaning profit there will be slim. And if things do crash the wrong way it will be 2008 all over again but this time the debt heavy Government will have little left to try and correct things.
This is why starting to turn some of your portfolio into gold now is such a good idea. It is likely that gold will stabilize more in 2016, and as the recent boom times start to tighten up other wise heads will start to get back into gold smelling the same bottom of the cycle and getting ready for the gold prices to start swinging back up.
Gold is a long term investment; it does not have the sharp increases and drops of the stock market and hence no fast profit potential. But also the odds of large losses are very limited. However as with the 2006-2012 GFC gold was the place to be while everything else plummeted. Gold moves opposite the stock markets etc. So if things do go badly for the world economies as we near the end of this decade having a portion of your investments in gold as an insurance plan could help save your retirement plans!
The post When is the best time to buy gold in Maine appeared first on Davinci Money.