One analyst says now is the time to buy gold because it is at or near the bottom. Another analyst says don’t waste your money because the gold price will be lower next week, next month and next year. What are you to do?
Let’s start with the premise that no one knows for certain what the price of gold will be next week, next month, or next year. Technicians can study their charts and analysts can talk about the fundamentals, but about half of them will be wrong. Is there an analyst out there with the conviction to bet everything he owns on his prediction for the price of gold?
Should you invest in physical gold today or is it prudent to wait? Start with your personal objective. Why do you want to own gold? Do you have a good reason to purchase gold today or are you buying it for the wrong reason?
Right Reason: To Diversify your Portfolio and Lower Risk
Even though you may have done very well during the stock market’s 5-year bullish run, a smart investor knows that stock prices will not go up forever. We could very well see a significant correction in the coming months. Putting a minimum of 10 percent of your portfolio in gold can lessen the pain of a declining stock market. Gold generally moves in the opposite direction of equities so when stocks are down, gold goes up.
Wrong Reason: Influenced by Others
If a gold guru, financial adviser, or friend recommends that you buy it now, you should not rush out and purchase the yellow metal tomorrow. Although today’s prices are very attractive, you should never feel pressured to “buy now because the price may never be so low.” You can listen to an array of opinions, but decide on when to purchase on your own terms.
Right Reason: You Have a Long Time Horizon
As 2014 has proven, gold prices can fluctuate from one extreme to another over the course of a year. Gold hit a high just under $1,400 and also fell below $1,150 in the same 12-month period. You don’t want to be a trader and try to time the market. If you have at least a 10-year time horizon before you need to sell your gold, it really does not matter if prices go down after you made your purchase. The best way to accumulate the precious metal is to buy it over several months or several years. That way, you’ll average out the highs and lows. Buy it and put it away for the long-term.
Wrong Reason: Laziness
Similar to what has been stated above, laziness is not a good reason to invest or not invest in gold, or anything else for that matter. Just because people say it’s a good investment, you will want to agree for yourself. Yes, it’s good to want your investments to work for you, but you may need to do some initial legwork to feel confident with your investment decisions. If you do not want to spend the time investigating why and how to buy gold (as there many different options), chances are that you will not know how to make the most of your investment.
Right Reason: Downside Risk is Low
It is possible that gold prices could drop close to $1,000, but it is more likely that over the long-run, gold could sell for $2,000 or more. In China and India, demand for gold is on the upswing. We are not mining too much new gold. Central banks have shown increased gold buying lately, which increased demand in the marketplace and is also an indicator of its value.
Don’t buy gold because you are afraid that the price is going to go up and you’ll miss out on the gains (unless you are a short-term investor and are familiar with short trades). In general, you will want to buy gold because you believe the long-term trend is up and you want to have some exposure and protection in your portfolio.