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Are Gold Prices Going Up?

Updated on February 26, 2016

Our fascination with gold

Gold as a metal has always captured the imaginations of people for thousands of years, as it has represented wealth, success, and in some cases - deities throughout history.

In our modern age, as far as it relates to an investment, gold is a somewhat odd metal and vehicle if you want to use it to build wealth.

The reason is is its uses aren't anywhere near in number or variety as its cousin silver, which has an enormous number of uses, and can be measured in that way when you look to invest in it.

Gold on the other hand, has really only several major uses, and that isn't enough to create the type of demand commodity investors look for.

In other words, gold is a different type of investment that demands a different outlook from investors looking to make money by investing in it.

Gold the political metal

In essence, gold has become a political metal, because it represented in times past a standard and check and balance for those creating paper money out of thin or, or in our times - digital money out of thin air.. Now that the gold standard has been dropped, it removes the discipline it forced on governments, and so now fiat money is created, which is the cause behind the endless booms and busts we experience in our economies.

Anyway, now gold is primarily looked upon by most investors as a major hedge against inflation and uncertainty; the reason it moves up in price in difficult times, as it has over the last decade.

Gold Uses

As far as practical uses that create some demand for gold, the major ones are in electronics, dentistry, and Indian weddings. And it may surprise you to know that by far the greatest demand for gold is in connection with Indian weddings.

There are many other uses for gold, but its in small amounts across a variety of industries and in specific situations, which don't produce much demand.

So what does that make gold as an investment? Like I said - unique. For a small but growing number of people, it is being acquired for protection against economic collapse and social unrest.

Indian wedding major source of gold demand

Present Gold Demand

There has been a huge demand for physical gold since the global economy went into the deep recession, and many continue to invest in gold coins and bars as a protection against anything disastrous happening, including the continuing devaluation of fiat money.

The reason this is done is because gold is the ultimate currency, and no matter how difficult times get, can be used for trade. You can't say that about paper money which isn't backed by anything any longer except the 'good will' of the government having the paper money printed out.

Can gold build wealth?

Investing in gold, for the reasons stated above, is difficult to make people rich, as far as gold in and of itself. You can invest in gold coins from a numismatic perspective, but that's different than investing in gold as a commodity.

What has been keeping gold prices from really surging has been a period of forced liquidation, where funds had to sell off their gold because they weren't able to get access to money.

That means that they not only weren't holding on to gold, which they really wanted to, but also weren't investing in it at a time when it usually warrants it.

The attempt to artificially prop up the U.S. dollar has also resulted in gold prices moving up far beyond their current prices, which are still at historic highs, although not when adjusted for inflation.

So at this time, investing in or buying gold in primarily being done for safety reasons and as a hedge against inflation.

Inflation should push gold prices up for years ahead

With the unbelievable deficit spending by the U.S. government, inflation is going to be a huge factor in the years ahead, as printing of money, by definition, is inflation. And the amount being printed boggles the mind, and will result in the price of gold skyrocketing to protect against the inflation pressures which will no doubt come upon us.

The unprecedented bailouts by the U.S. government makes this only a matter of when, not if.

So those investing in gold will find themselves possibly enjoying one of the greatest upward gold price movements in history, and will build wealth in a way gold has never been able to do in the past.

Physical gold in big demand

Invest in gold with the long term in mind

There are a number of ways to invest in gold, but I would only focus on the long term trend, and forget about attempting to make a quick killing by trying to predict short term movements, which even the best of day traders aren't able to do very well.

Long term investing in gold is the only way to approach it, and those that do will find themselves in a good position when gold prices start to go up.

Best ways to invest in gold now

Other than owning physical gold, other ways to invest are through gold futures, gold ETFs or a gold index.

I would watch getting into gold mining companies, or any type of company that relies on the skill of management, labor issues or possible government intervention. Those things make investing in gold much more complicated, and leave too many things on the table that could go wrong and we would have to rely on to go right in order to make money in gold.

Investing in gold without the rest of it should be the way to go, as it takes away all the extras and you can look at it simply as what it is and what it does. That's really the best way to invest in all commodities.

Other than taking physical delivery of gold, the other best way to invest in it would be through gold royalty companies such as Royal Gold. For the most part all you have to do is understand the price movement of gold in the current economic climate, as expenditures and contracts are pretty much locked in place, and the stock will move up or down in unison with the price of gold.

About the only risk commodity royalty companies face are those associated with the by-product they buy from miners. If a particular mine has local problems, it could temporarily cut into productions and by extension, profits of the gold royalty companies. Other than that, it's completely locked into the price of gold.

So if you have a good hold on what is having an impact on gold prices, you can be confident in the gold royalty companies. They are simply uncomplicated and easy to understand.

Are at the verge of an historic gold bull run?

So to recap, gold is different that any other commodity because it's the only one that isn't measured by supply and demand, as the amount of demand just isn't enough to move the price of gold.

Gold is valued mostly as a hedge against inflation and safety in times of turmoil. That's where the price point is fixated on, and that's what will drive up the price of gold.

The key indicators are already in place which meets the above two criteria, with economic turmoil raging and inflation about to go out of this world as the U.S. government just keeps the printing presses going to print out their funny money.

With that in mind, gold may possibly enter an enormous bull run in response to inflationary pressures that could be unprecedented in history, because of the debt being incurred from government intervention into the free markets. Those investing in gold should enjoy great success in response to these realities.

One thing to keep in mind is the unprecedented rise in an asset class like gold over the last decade. It could result in a temporary pullback before going up again.

Comments

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    • jayprakashgupta profile image

      Jay Prakash Gupta 19 months ago from Mumbai

      I would like to add..

      2016 began with a turmoil on Global Front- Fear of China slowdown, Middle East Crisis then mid of the year we saw a historic though surprising UK’s vote to leave European Union. These events unfolding from the existing concern over the health of global economy has fueled a rally of around 20% in Gold till date. On domestic front, despite poor monsoons last year, higher import duties, and falling imports Gold has managed to give return of 20% as well.

      Gold is likely to go up in near future and can touch a level of 32000 by Mid of 2017. Gold prices generally go up in times of uncertainty and we can expect a lot of them for next 5-6 months. US elections, OPEC meeting, FEDs decision to increase Interest Rates in December are some immediate triggers. On Domestic front, better monsoon, 7th Pay commission hike will create additional disposable income which will result in demand for Gold Jewelry among Indian Households.

      Visit my bolg on

      www.mdirect.co.in

    • john000 profile image

      John R Wilsdon 6 years ago from Superior, Arizona

      Well-written hub! I agree with what you have to say. The only thing that I would add is when you say "and is the cause behind the endless booms and busts we experience in our economies"

      gold has forced the government and Fed to be responsible. If politicians in congress were concerned about the relationship between the amount of currency in circulation and increases in GDP, we wouldn't have this problem. If we had gold as a "real" backing in value of the dollar it would force all politicians from doing the WRONG thing. Good hub, thumbs up and all.

    • profile image

      mohita 6 years ago

      I am totally agree with you about gold prices bt what abt silver price ... http://onlinetradingttips.blogspot.com/

    • profile image

      BxL 7 years ago

      I read a few articles about silver investments and the fact that the value of silver is growing. Even though these things are happening, a gold investment is way more efficient. As you mentioned in your article, a long term investment has better results. Markets are always unpredictable and short term investments may lead you to bankruptcy.

      Read more about gold bullion at http://goldbarbuy.blogspot.com/

    • profile image

      DontUseBanks 8 years ago

      I have to agree with you. Gold is where it's at.

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