The best way to reveal the true state of U.S. economic health is by checking out the gold value in overall. However, if the prices are too high, it means that the economy is not healthy at all, because gold tends to act in opposition to normal economic balance.
Investors tend to purchase gold and other precious metals such as silver coins for sale so that they can get protection against inflation and economic crisis. On the other hand, a sign that the economy is healthy requires gold to have a low price.
Therefore, investors will use more profitable investments such as real estate, bonds, and stocks than before. However, the question is why you should invest in precious metals. Some people consider gold as a haven, hedge or direct investment.
When it comes to the law of demand and supply, usually it affects the price of gold. However, the number of stockpiled gold is 60 times greater than the amount we mine on an annual basis. Showdowns and upticks of mining activity are not enough to handle the demand.
The advancement in technology allowed us to recycle gold, and more than 25% of annual supply comes from recycled gold. As soon as prices rise, the recovered amount increases as well. On the other hand, 10% of gold supply goes to industrial purposes mainly in electrical devices.
The rest of annual supply goes for coin collectors, jewelry and central banks. The price of gold reflects the beliefs that investors are sharing when it comes to commodities. If people believe that the economy is going in the right direction, they will buy less gold as a result.
Therefore, we can easily say that gold prices tend to reveal whether investors believe in economic health or not.
In 2016 Gold Prices Surged
For instance, we have to mention the example of June 2016, when gold prices increased for $100 an ounce in a period of six hours. The main reason why it happened because investors panicked due to Brexit and Great Britain leaving the EU.
Prices rose from $1200 approximately to $1300 in a matter of few hours. Investors decided to purchase gold as a part of hedge and security that will help them deal against the declining British pound and euro.
2011 – All-Time High
On the other hand, you probably remember 2011 when gold reached the highest price possible up to $1895 an ounce. Everything started due to Eurozone debt crisis and weak jobs report as well as the uncertainty that moved around the U.S. debt.
It rose from a thousand dollars in 2009, and it doubled its amount two years later. Investors got worried that Congress would raise the debt ceiling, and without the ability to issue new debt, the government defaulted instead.
In May 2011, copper, silver and gold prices plummeted, and commodities traders had reduced their holdings. Silver fell for eight percent, which one the most significant drop in thirty years.
Gold also plummeted to $1500 an ounce, while it reached all-time high a few days back. Oil and copper also fell because of economic changes.
During the April, Federal Reserve chair issued a statement that sent gold prices in the air. They have announced a two-year program called QE2 of quantities easing. They have purchased $600 billion so that they can keep term interest rates low.
By visiting this site: https://www.investopedia.com/terms/q/quantitative-easing.asp you can learn more on quantitative easing.
This particular announcement created havoc and sent gold prices soaring, which led to a new record in April 2011. The main reason why investors chose to diversify their money into gold is due to inflation, and high oil prices pushed other prices as well.
Finally, one of the most prominent commodity investors George Soros stated that gold is the ultimate bubble and that it is not a safe investment anymore. Central banks decided to diversify out of currency investments and to get everything into gold.
The main reason for that happening is due to uncertainty about Eurozone debt crisis as well as debt in the USA.
Gold has always been a safe haven during the uncertain times, and in retrospects, buying gold at the time would provide you a high return on investment if you’re patient enough.
Timing is everything that matters when it comes to investments.