With gold at all-time highs, many people wonder if it’s worth what it used to be worth. Here’s how to answer that question.
Are you kidding me? I know gold prices have been soaring but that’s because…
The Fed is raising rates, which could mean lower gold prices.
China is ratcheting up its credit, which could mean more money flowing into gold.
US politics are getting increasingly…interesting.
I could go on but you get the idea.
You can see that, without question, some of the drivers of gold prices are under pressure at the moment.
How to determine whether gold worth buying
To figure out whether gold is going to climb, or whether it’s just at an all-time high, I like to look at the next two years, that’s when a lot of traders expect things to come apart and gold prices will fall.
The point is, when you’re looking at gold from a trading perspective, the key question is how far prices are likely to drop If they go below $1,000, the outlook is really grim.
That’s why I would say the risks around gold are really skewed to the downside, that’s why I think it is, in the long run, worth a lot more than it’s worth today check the 18k gold value.
But while it could be worth a lot more than today, it could be worth a lot less than today too.
That’s the tradeoff…
But if you’re just looking for a long-term asset to buy and hold, then the risk-reward looks pretty good.
I can see where the sceptics are coming from. Yes, the macro environment is far more volatile than the last ten years.
But given the inflation rate is under control, and given all the central banks are buying gold, then there’s not much reason to panic about the metal.
Here are a few more reasons I’m convinced gold is still a smart choice to have in your portfolio…
At 3.45%, the yield on cash is historically low. Learn why this could mean it’s a good time to take a punt on the gold.
Yes, the US yield is up there but since 1950 when the S&P 500 is also yielding under 3.5%, gold has been a pretty good hedge.
And don’t forget, this huge sell-off isn’t isolated to the gold sector, it’s got global consequences.
The same phenomenon happened in March 2011, which is why we were pretty bullish on gold at the time.
Look what happened in the US two weeks later, the same thing happened in April 2011, and in September 2011 the Fed had to come out and calm things down again.
So, if things really are different this time around, then why haven’t investors taken note?
There’s no better way to make money than to sell your winners and buy your losers.
A classic idea people get stuck on in gold and commodities is that it’s a super-safe haven for when the sun goes down on the markets.
This makes sense, but with a big sell-off coming it’s getting harder and harder to make a case for gold right now.
But even if you disagree that gold is still the most “safe haven” asset, the reality is the sell-off is a buying opportunity.Even though if the situation becomes bad, with a recession or other bad news, gold could rise quite rapidly when oilpricez rises.