Gold, like all other investments, has its risks and can be volatile depending on the economy. Determining the value in gold prices can be subjective, and it also depends on your risk appetite.
Although gold is a relatively low risk and less volatile asset than stocks and bonds, there are certain optimal times to invest in gold to reap more market returns and limit your losses.
During uncertainties in markets
Gold usually has its intrinsic value and an inverse relationship with other asset classes. Asset classes like stocks and bonds are often more vulnerable to market changes—when they fall, gold tends to be more bullish, and vice versa.
During global economic downturns, gold prices tend to rise. As such, investors seek gold as a safe-haven asset as it can act as a hedge against inflation and withstand volatility better than other currencies.
Many see gold as a recession-proof investment. This means that its value will not be easily affected by financial instability, allowing investors to hold their money and limit their stock market losses.
For example, the Covid-19 pandemic has caused a major recession and unemployment in many countries, and global stock markets also plummeted. But these uncertainties tend to support gold prices. In fact, gold hit a record high price in August 2020 due to fears of further global economic downturn from rising coronavirus cases.
If you think that there will be prolonged market volatility and economic crises that may cause stocks and bonds to decline, it would be a good time to invest in gold.
During periods of ultra-low real interest rates
Gold prices have an inverse relationship with interest rates—interest rates may fluctuate according to the state of a nation’s economy, and gold is highly dependent on interest rates. When interest rates are low, gold usually benefits positively.
In times of an economic crisis, governments tend to implement fiscal stimulus to help boost economic growth. A fiscal stimulus includes lowering tax and interest rates to increase people’s purchasing power in an attempt to help the economy recover. However, having low interest rates would also cause inflation to occur.
When inflation increases more than interest rates, it’ll be more expensive to hold fiat currency and storing your money in gold can act as a hedge against inflation. Furthermore, when interest rates are extremely low or negative, other investments become more expensive to hold for investors, causing gold to be even more attractive.
Hence, it is crucial to observe real interest rates when determining when is the best time to buy gold. Real interest rates are inflation-adjusted interest rates—when there are ultra-low real interest rates, gold becomes more appealing to investors as they become cheaper to buy and hold their wealth in gold.
Rising tensions in the US economy and politics
The US influences gold in many ways, especially since gold prices are valued in US dollars. Gold’s appeal is highly dependent on both the US economy and political tensions surrounding it.
Especially during this time when the pandemic has unprecedented impacts on the US economy, investors are keeping a close watch on gold prices. To combat the economic downturn, the US government has proposed major fiscal stimulus packages, which will cause the lowering of interest rates and a possible depreciation of the US dollar.
A weak US dollar will make gold more attractive to buyers holding other currencies as it would be much cheaper to purchase gold. The weakening of the dollar and low interest rates will also cause gold prices to increase.
Similarly, political tensions surrounding an upcoming US election also affect gold prices as candidates from different political parties propose policies concerning the US economy. Many investors tend to purchase gold as a form of protection during these periods of uncertainty.
Constant observation of changes around the US economy and politics can help you find out when is a good time to buy gold.
How do you know exactly when to buy gold?
Like all other investments, gold also has its risks. For example, gold prices may fall when the economy prospers or starts to recover. Those listed above are the most prominent factors that tend to influence gold prices, but they are not the only factors.
It’s essential to continuously observe market trends and forecasts to tell when is a good time to invest in gold. Gold prices vary everyday—make sure to keep up with gold updates and analyse gold trends through news publications and newsletters.
Although there isn’t a way to find out exactly when is the best time to buy gold, it’s always good to have gold as part of your investment plan. Gold is a great way to diversify your investment portfolio to limit losses, especially when there is an unexpected economic crisis like the ongoing pandemic.
If you want to invest in gold but are not sure how to start, try out a digital gold trading app like Everest Gold. It’s as easy as downloading the app and registering as a user to trade on the Everest Gold platform today!