It all began when the housing market nearly collapsed in 2008 and stock market market didn't seem to be all that happy either. People lost their retirement funds; families lost their college funds. And then this year, with S&P downgrading the credit standing of the US, the stock market has gone into tailspin again. What do you do if you are a regular small-time individual investor who's just looking to maintain his assets? You go and do what economists have always said people do in times of uncertainty you go and put your money in something that's extremely stable. You go investing in gold.
For those who are tired of seeing their savings move as if it were on a greased pole inching up in painstaking fashion only to slip down again a few months later the way gold has been behaving over the past few months can only be heartening. It's as if gold hits a new high every day a new record.
With all this action coming in from real investors who want nothing more than to see their hard-earned money stay in good shape, the gold market has suddenly become extremely attractive to speculators as well. These are people who aren't really interested in staying in the market for the security it offers. They only want to stay for as long as they need to, to make a quick buck speculating.
When a market attracts speculators in large numbers all of a sudden, people begin to wonder is this a bubble waiting to happen? Think about it in the year 2007, before the recession began, gold was about $750 an ounce. A mere 12 months later, it went up to $1000 an ounce, a never-seen-before price level. Now, today, it's about $1900 an ounce. It took gold centuries to reach $750; how did it jump up to more than twice that in just three years? Investors do worry about whether this kind of a meteoric rise signals an unhealthy environment and a collapse to follow.
Gold doesn't have any inherent value though; it's valuable just because we've all agreed that it should be valuable. It has a place in human financial history as the substance that is used to back up currency. In a time when every standard kind of investment is seen to be shaky, people have no choice but to turn to the safe haven in investing in gold that mankind has sought for centuries.
Remember the last time that gold got into a helicopter and took off? It was when gold cost $35 an ounce under President Nixon. The dollar at the time was fixed in value, pegged to the price of gold. President Nixon at one point suddenly ended this kind of fixed relationship. It was at that point that the value of gold and the value of the US dollar began to fluctuate like they were commodities. Investors however still see a relationship between the dollar and gold. When the value of one falls too much, they try to compensate by switching to the other. The US government has run up a deficit ever since Nixon; and the value of the dollar has fallen as a result. That's why investing in gold has been such a good idea ever since Nixon. That's when the price of gold really began to rise.
If you are investing in gold, how do you know when to sell? When confidence in the US government begins to rise, that's when the price of gold will begin to fall. A rise in confidence in the US government doesn't seem to be close at hand.
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