There is no doubt about it; the price of gold is going up. What many people assume to be a good thing may actually prove to be a poor way to invest their money.
Times are tough and people are in debt. When the financial pressure is on, people begin to look for ways to make money through “safe” investments. Compared to the roller coaster of the stock market, gold is a less risky investment in terms of the potential for large losses from day to day. However, investing in gold may not prove to be as fruitful as many would hope.
The Economy and The Price Of Gold
Economists have long stood by the notion that when the economy is suffering, the price of gold increases. This is mainly due to the consistently high demand for gold, which places it as a less risky commodity. Since the price of gold increases in a tough market, many people assume buying gold is an easy way to make money. Here is the problem:
The return on investment for gold is usually very little. This is true for people who look to buy gold and sell it within a few months to make a profit. The average increase in the price of gold varies very little in a stable market; therefore, buying gold during a recession leaves very little room for profitability. To make a profit the gold would need to be invested for a long period of time, which is problematic when the market’s strength returns. The best time to invest in gold is when the economy is flourishing and gold prices are at their lowest.
There is no interest gained when investing in gold. Unlike stock market investments, gold is categorized as a “store in value” investment; meaning it holds its value well but leaves little room for growth. This is mainly due to the lack of interest rate applied to a gold purchase; whereas market investments, such as bonds and mutual funds, produce their profits from interest rates. Gold investments require purchasing a large sum, in effort to be able to sell enough volume to profit with such a low margin.