Is Gold A Good Investment For Retirement?

Is Gold A Good Investment For Retirement?

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Gold has always been associated with wealth. However, it was abandoned in the wake of the industrial revolution due to its volatility and scarcity and couldn’t be relied on in an ever-expanding global economy.

Even so, that doesn’t mean gold is worthless, as it’s currently retailing at $1,900 per ounce. Should you invest in gold as a retiree or someone planning to retire soon?

Gold’s value is known to fluctuate and is very unpredictable. It’s considered a value holding asset that you can sell when the markets are favorable. It’s also a counter-cyclical asset, meaning its value reacts opposite to market performances. It’s not a suitable retirement investment since it doesn’t earn any dividend, and its value is based on the price investors decide to pay.

That’s not all, as you still need to know why the gold prices fluctuate, the best time to invest in gold, and the percentage of your portfolio to invest, which you will learn if you read on.

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Can you Consider Gold Investment for Retirement?

Planning for retirement is crucial, and you shouldn’t rely on 401(k) or other retirement plans alone. Diversification is the key to success in any investment plan, and many have considered gold.

But how well do you know about gold investment, and how well does this investment pay?

To understand this, we need to know about modern gold and its value in the market. We also need to understand how the asset performs in the market compared to other assets.

Only then will we be able to determine if it’s a good choice for retirement investment.

Although gold has been increasing in value for the last ten years, its price is unpredictable and fluctuates more frequently. It’s currently retailing at $1,900 per ounce, which is the highest it has ever reached but going by its history, it’s easy to see the price drop by the end of 2022.

As a retiree or someone planning to retire, you should focus on income-generating investments, and gold is not one of them. It’s considered a value holding asset, where you buy it on the cheap and hope for the prices to rise before selling it.

Additionally, it’s a counter-cyclical asset meaning it performs opposite of the market. For instance, people tend to buy more gold when the market performs poorly, hence driving its price up.

The only problem is you cannot rely on this type of investment as the markets have proven to bounce back after a challenging period. Gold’s value tends to go down as the market improves, and as its history would tell, the price often gets lower than the opening price.

Gold might be great for a short-term investment, but it’s unreliable for long-term plans like retirement.

Why Do Gold’s Prices Fluctuate?

The value of any commodity is associated with its price. Gold’s prices tend to fluctuate for many reasons:

  • Demand and supply – gold is never in demand throughout the year, and prices tend to go up when the demand goes up. The opposite is also true.
  • Market performance – gold is a counter-cyclical asset that performs better when the market is performing poorly and loses value once the market recovers.
  • Investor behavior – gold has a positive price elasticity, which means the price goes up when the demand is high.
  • Fear – people often flock to buy gold when the economy isn’t performing well as a way to diversify their portfolio.

Central banks also participate in gold’s price movements, although not all the time. Central banks hold stocks of gold for when the economy isn’t performing as predicted.

However, they’re more likely to let go of the excess gold when they have large foreign exchange reserves, which causes the prices to fall drastically.

Even so, banks have a gentleman agreement preventing them from selling more than 400 metric tons of gold yearly, as doing so would crumble the commodity’s price, which ends up affecting their portfolio.

What’s the Best Time to Invest in Gold?

Gold prices are impossible to predict since they’re influenced by events we cannot control, such as the central bank’s decision to buy or sell.

However, that doesn’t mean you can’t pick a favorable time to invest in this commodity, but you’ll need to monitor the market perfectly.

The best time to buy gold is when prices are at their lowest with hopes of selling it at higher prices in the future. However, there must be market indicators in place promising a positive turn in prices, or you might find yourself counting losses.

If you want to buy gold, it’s best to monitor demand and supply and the status of the economy. The best time to buy gold is when the demand is low, and the economy is at its peak.

You can get gold cheaply during this period, and hold, waiting for events to change.

Given the history of the global economy, things tend to get rocky once in a while. When this happens, many people tend to buy gold to deal with inflation, and it’s the best time to sell the commodity.

However, it would help if you didn’t wait too long as global markets tend to recover quickly, thanks to measures put in place to deal with uncertainties. 

How Much of Your Portfolio Should you Invest in Gold?

Financial experts recommend investing no more than 15% of your portfolio in gold, given how this commodity’s value keeps fluctuating. Gold is also a dead asset that generates no income for the investor.

Also, there’s the issue of taxation, where you’re required to pay 28% tax on gains after the sale. Instead, diversify and invest in income-generating assets like bonds if you’re planning to retire.

Final Thoughts

Gold might still be famous and associated with wealth, but it’s not a great investment option for retirees or those planning to retire. The commodity earns you no income, and you only gain if you sell it at higher prices than you bought.

Gold’s price is also unpredictable and fluctuates based on demand and supply, investors’ behavior, and based on how the global markets perform.

Don’t invest more than 15% of gold in your portfolio, and only buy when the prices are low.

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