When gold eclipsed $1325 earlier this year it looked like it was staging a rally towards $1400 or higher. However, the rally didn't last and it appears gold has officially fallen into a bear market since the highs around $1900 in 2011/2012. It's anyone's guess how long it will last. You can view a historical chart of the metals prices here.
That being said, gold's recent price drop is not unique. All commodities, equities, and even bonds go through price changes. What is unique about gold is its historical price trend as a measure of value compared to government currencies. Our mandated currency just happens to be the dollar, so that is the currency we are most interested in comparing to gold. That is the reason you hear me preaching about the long term picture (over and over and over). Again, how and when you buy the precious metal depends entirely on your purpose for investing. Are you trading (buying and selling) for short term profit potential? Or are you buying gold to hedge the risks of dollar devaluation over the next 20-30 years? If you are somewhere in between or trying to do both, then you need to be more diligent with timing your purchases and investment allocation. That takes a lot of time and energy, and it is why you need a financial plan. I can help you with that.
Gold is at its lowest level compared to equities since 2008, Gold Sinks to Lowest Against Stocks Since Lehman Collapse. And if you are watching, silver is even lower compared to its recent highs. Is that a bad thing? Not necessarily. It may present the first buying opportunity for many of you. Separately, for anyone who purchased gold at $1900 it probably doesn't sit well seeing the prices hover around $1200. So putting things in perspective might make it easier to sleep at night.
In 2008, almost a decade after the bull run in gold started, after its large price drop that year, the price leveled off around $800. That is compared to $250 at the start of the 21st century. Don't get me wrong, nobody knows how far the gold price might go down this time, but the fact remains it doesn't stay down. How long will it stay there? I guess that depends on your definition of "long." For me and many others who own gold, 5 years is not long. It's been 2 years since the highs in gold and it feels like an eternity. However, looking at historical charts is a good way to stay on track. The purpose of owning 5-10% of your investments in gold is to protect from dollar devaluation over a long period of time. From 2008 to 2012 the price of gold doubled, and it wouldn't surprise me to see the same thing happen again during the next 5-10 years. Your guess is as good as mine when the next run up will occur, but history shows us the trend is clear. Go back 60 years and the change to today's prices is staggering.
The primary fact to remember is that despite gold's volatility, it retains its monetary value over long periods of time. That is why government's and central banks still hold a portion of their currency reserves in gold. In fact, most central banks are currently expanding their gold balance sheets to retain confidence from their respective citizenry.
The fact that gold is down from its all-time highs a couple years ago should not deter you from looking at the big picture. I'll remind our readers again, gold is always valued higher than the government mandated currency. The short term fluctuations in price may be confusing, but the long term trend is obvious and needs to be a part of every investment portfolio. Keep my 5-10% recommendation in mind the next time you are adding extra money to savings, or putting some extra away to pass on to the kids or grand kids.
And as always, Keep the Faith and God Bless.
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