Gold prices have been going through a slump recently, but experts agree that the lower prices should not deter investors from jumping on this investment opportunity. Gold has always been a highly traded commodity, and this aspect will not be changing any time soon.
While some may point to the current market as a reason for alarm, others point to changes in the value of the dollar as the true reason for the recent drop in gold prices.
The Value of the Dollar in Relation to Gold
The value of the American dollar fluctuates over time due to inflation. Inflation occurs when the supply of money is increased through printing and buying treasury bills.
In 1971, the ties between the values of the dollar in relation to gold were severed, allowing both the dollar and gold to be freed from the constraints of being tied together. While this cut allowed the value of the dollar to begin drastic fluctuations, the value of gold remained steady.
Today, even though the two are no longer directly tied to each other, the effects are still seen. When the value of the dollar decreases, gold prices tend to increase as more people purchase gold in an effort to distance themselves from the changes in the value of the dollar.
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The value of the dollar fluctuates often, especially when the supply and demand changes. Even with these changes, the long term value of the dollar can be rather alarming, especially if the long term purchasing power is considered.
The government is currently printing money at a high rate, which decreases the demand. This trend will lead to the value of the dollar decreasing even more.
The Value of Gold
The value of gold has generally maintained its value over the last 12 years. However, it has dropped in recent months. Even though those drops in value were drastic, the value of gold has now gone back on the upswing.
Even though many people equate the value of gold with the changing value of the dollar, in actuality, the value of gold remains considerably more stable than that of the dollar. This variance lies in not only the fluctuations of the dollar, but also in the fact that gold is a commodity that is used all over the world.
Even though the value of gold went from a period of very high value, to one that was considerably lower, this fluctuation has more to do with correction of the market rather than simply the value of gold as an asset. When there is a commodity that continues to go up in value for several years, as gold did, there has to be a correction at some point. Experts believe that this is what has happened with the current gold prices.
Gold on its own seems to have continued to increase in value for around 12 years. While the sudden drop in pricing would seem to point to a lessening of the value, this is not the case.
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Instead, the current gold prices are a reflection of the many different aspects that go into the actual value of a commodity. In this case, the prices are a reflection of the fluctuations in those aspects, rather than simply the value of the gold itself.
Investors also need to keep in mind that fluctuation in gold prices also occurs when there are serious global events going on as well. These prices may not show an immediate effect from these issues, but considering that gold is a commodity that is used world-wide, there will be some fluctuation that does not truly have that much meaning behind it.
Why You Should Invest in Gold
Gold has been when of the highest value commodities for decades. After seeing increases for 12 years straight, there was finally a downturn.
This decrease has left many wondering if they should bail out of the gold trade now, but many others are trying to decide if now is the right time to buy gold. Gold had a greater than 10 year bull run, and the sudden drop left many investors shaken.
However, you should also consider the fact that this commodity has steadily increased until recently.
Nearly every commodity goes through periods of valuation decrease, and gold is no different. However, experts believe that now is most definitely the time to invest in gold.
The reason for this is that many investors and experts in the field are exceedingly confident that gold will continue to go up in value once again, especially with the increase in monetary printing by the Federal Reserve.
As mentioned, increased printing generally results in a decrease in the value of the dollar, and history has shown that when this happens, gold values increase. This is a significant reason for investing in gold now, rather than waiting for later.
Many investors agree that purchasing now, while pricing is lower, will result in gains later on when gold continues back on its upswing in value.