It’s not uncommon for the gold price to take a plunge every now and then. The good news is that as a gold investor, you shouldn’t get stressed over gold price drop too quickly.
Wondering why? Here are some top reasons gold investors shouldn’t worry when there’s a drop in gold prices.
1. The drop is usually minimal:
Sometimes, the move in gold in a day is only a few percents, and that’s not a whole lot. If the price were to fall a few percents every day for an extended period, then losses would quickly add up, but it doesn’t really get to that point.
2. Gold drops when the dollar strengthens:
The dollar has been strong for some time now, especially against some of the other leading currencies in the world. When the dollar gains value, that’s when gold prices typically fall. What this means is that the upward movement of the dollar’s value is responsible for fluctuations in gold prices. It usually works the other way around, too.
3. When gold doesn’t do well, other investments shine:
Let’s use an example. Over 20 years between 1980 and 2000, the price of gold dropped from as much as $850 an ounce to under $300 an ounce. At the same time, the S&P 500 index rallied over 1,000%. Find the latest gold prices at http://citygoldbullion.com.au/.
4. Gold is still good to own even when markets aren’t good:
While the markets aren’t under any pressure right now, there are phases of financial crises and during those times, investors typically can’t sell certain securities.
As an example, there’s the market for auction rate securities. This is a kind of bond. If you own those during a stressful market period, you will not be able to sell them, no matter how low a price you may want. Yet, the market for gold just doesn’t dry up. There are always buyers ready to purchase futures or metal.
5. Gold prices move up and down, and that’s attractive to investors:
Just like most other types of investments, the price of gold fluctuates from one day to the next. But those price movements don’t often correlate with the changes in stock values or even bond values. When share prices drop, gold may well move up, move down or even remain unchanged.
The lack of correlation actually helps to diversify an investor’s portfolio. Even better, when you look at it in combination with other kinds of investments, adding gold can really reduce your portfolio’s overall volatility. For investors, volatility and risk are one and the same. Lower volatility equals lower risk.
As you can see, when gold prices drop, not only is it usually by a few percents here and there, it’s not really a big deal. If you own gold and you’re worried that prices could drop, just think about why you purchased gold, to begin with.
Most experienced investors say they own gold to help diversify their portfolios, as a hedge against the rapid decline in value of paper money or even as insurance that you will always have the opportunity to raise cash when you sell some of your metal.
So, don’t worry when gold fluctuates – it’s the one investment your portfolio can count on.