Kyle Jernigan - September 20, 2021
Why You Should Invest When the Price of Gold Falls
When the price of gold falls, investors often get excited. But why? It's a valid question; it isn't immediately intuitive why gold investors often want the price to fall. That's why today we're going to review the opportunity low gold prices present investors. Whether you're interested in buying gold or just trying to understand the metal market, you're going to want to know what we've got below.
What Determines the Price of Gold?
First, let's begin with a general review of what determines the price of gold. It's more or less always held significant value but that value also isn't as steady as some non-investors think.
While the specifics are complex enough an entire book could be written on the topic, the value of gold is determined much like anything else: supply and demand.
One of the things investors love about gold is that the supply is fairly steady and predictable. About 2.5-3 tonnes of gold are added into the market each year. (Note that a tonne is not the same as a US ton, equalling 2,204.6 pounds.)
Vintage Gold Bars from the now defunct Republic Metals Corporation.
Some factors that will change the price of gold include:
- • Disasters and global conflicts, with gold often being seen as a safe investment in tough times
- • Interests rates rising, making other investment opportunities more attractive to many investors and thus gold less attractive (with the inverse also true)
- • Fluctuations in the currency value of currencies used to trade gold
It's also worth noting gold is used in some non-luxury products, such as electronics. As such, it's price can be affected by the popularity of these products and may shift as new ones are developed and old ones taken off the market.
Low Prices Mean Opportunity
While it's an oversimplification by itself, the motto of investors is often "Buy low, sell high." So long as it is reasonable to expect prices to rise again, it is often a good idea to buy into something when it is low.
This is where buying gold really shines. The cost of gold has been on a fairly predictable course for decades, with a slow and steady rise with only the occasional dip that prices then recover from.
It'd be very difficult for gold to crash and burn like many other investing opportunities are able to. Gold is a rare metal that humans have perceived as valuable for thousands of years.
It would take a massive cultural shift for gold's perceived value to permanently change for the worse. Meanwhile, temporary changes in its perceived value only mean opportunities to buy in.
If you notice gold prices are falling, it's not a bad idea to prepare yourself to buy-in. Watch the prices and, when it seems they may be bottoming out, try to get in before the rise starts for maximum profits.
Inspecting Year of the Monkey Gold "dime size" coins at a Investor Crate QC station.
Tips for Getting Into Gold
With a better understanding of what affects gold prices and why low prices can be exciting, it's time to discuss how to form a basic investment strategy.
Like any investment opportunity, never assume gold is certain bet. It is relatively predictable and people do make money trading it; that doesn't mean you can't lose money too.
The biggest mistakes early investors make when buying and selling tend to do with emotion. Emotion has no place in investing; you want to buy and sell based on signals the market is giving you.
It's easy to get emotional with gold because small amounts carry a great deal of value. A small proportional change to the price of gold can mean big changes in the value of your portfolio.
If you notice gold dipping, get ready to buy but don't immediately do so. You're waiting for it to get about as low as it's likely to go.
You will never buy-in at the perfect time but you can almost always buy-in at a better time than the immediate moment you notice a change.
The same goes for selling. A small rise is a great thing to see but don't sell the moment there is potential for profit. You want to try and catch the rise near its peak.
This all takes time and expertise but is worth the effort. We definitely recommend new investors always do their research and try and find good communities to learn the basics of metal investing from.
Various Gold Bullion coins, bars and rounds.
A Rich Man's Game?
Now we will address the elephant in the room: gold is somewhat expensive. Gold bullion of even a few tenths of an ounce can cost several hundred dollars. However, it's not as much of a "rich man's game" as many assume.
Gold investment is scalable. The more money you have, the more you can invest, but there are ways to buy gold such that someone of middle income can still get into the game.
It's also an at least somewhat liquid asset and can be converted back to money if your economic situation changes. It'd be rare for someone with a moderate investment in gold to see a massive loss unless they needed the gold to be converted into cash at a particularly low dip.
Gold, Silver, and More
The price of gold signals opportunity. Low prices mean new investors can come in and high prices mean current investors can cash out. Gold is a stable investment; there's a reason it's so popular.
If you're interested in getting into gold, silver, or platinum, sign up with us at Investor Crate. We offer a good selection of metal investing opportunities at a variety of price points. Whether you're looking to dive in or only dip your toes, we can help.