Traditional investors are still betting on gold compared to stock markets or cryptocurrency. But what about you? Do you think it is still a good idea to invest in gold knowing the gold price today? If so, this article will explain why gold doesn’t fluctuate much and why adding some gold to your investment portfolio is a great idea.
The price fluctuations depend on the market forces of demand and supply, and some factors affect these, resulting in changes in gold prices.
In the first place, gold is a non-yielding asset, and it doesn’t pay any interest on your investment, which means you can use it as a hedge against inflation and economic uncertainty. In addition, gold is an excellent hedge against currency devaluation.
For example, if you have an investment that pays out 10% annually, but your country’s currency loses value over time, buying gold will help protect your assets and yourself from future losses caused by currency devaluations.
Gold has held its value through centuries because it hasn’t been affected by inflationary forces like other forms of money have been throughout history.
Inflation reduces a person’s purchasing power, meaning whatever they have in their bank accounts or the cash they hold is now worth lower than before the inflation.
However, the prices of gold rise during inflationary periods as many people move towards investing in gold, pushing the demand up. If you have money in gold, you’re protecting your assets during a stressful economy.
If you were to ask people why gold doesn’t fluctuate much, they would say it’s because it’s a haven asset. They also say that investors see gold as a hedge against inflation and political uncertainty.
But what about economic cycles? Even though there may be some fluctuations at times (like during recessions), it doesn’t mean that your investment will lose money every time you buy or sell your stocks or bonds during this period (or any other). Your assets may still earn money even if the economy is doing well.
Traditional investors still run after gold during economic slowdowns. On the other hand, millennials are buying stock or investing in other volatile assets to buy the dip and make money—the demand for gold balances off.
Gold mining is a very capital-intensive business. The upfront costs of acquiring land, building infrastructure, and hiring labor can be high. Then there are the operating costs associated with running a mine, including training staff and paying them wages.
The environmental impact of gold mining is also not insignificant—in some cases, it’s more than 50% of the total cost! And finally, there are regulatory costs related to doing business in certain countries worldwide where regulations may change unexpectedly (or not).
Such market conditions affect gold supply, but gold is not a commodity everyone purchases, thus offsetting the demand.
There are only two ways to buy gold: directly from a bullion dealer or through an exchange. Because it’s so hard to access and sell, the gold market is less liquid than many other commodities like oil or copper.
The second reason the price of gold doesn’t fluctuate much is that it’s not traded as often as other commodities. When you look at how frequently different assets are bought or sold on an exchange (such as stocks), they don’t even come close!
Gold’s price doesn’t fluctuate much because it is an old-school asset, which is still seen as a safe investment by traditional investors.
Gold mining isn’t an accessible business; only about 1 million ounces are produced yearly from all sources worldwide (about 6% of total global production). Gold mining remains limited, so there isn’t a massive fluctuation in gold supply. The shift in the mindset of new-age investors keeps the demand in check.
Previously, investors would rush to invest in gold during a recession. Today, investors are looking to buy the dip in the stock market, real estate, or other assets they believe will provide them huge profits when the recession ends.
In the end, gold is a precious commodity that has been around for decades and will continue to be a safe haven asset. It is also one of the few investments guaranteeing a stable rise during economic uncertainty. It means that if you are looking for an investment vehicle that will give you returns over time with minimal risk, gold should be at the top of your list!