We all know the conventional wisdom about gold. It’s a haven. A long-term safe bet. In other words, it’s fine for the long-term. But if the last few years have taught us anything, it’s that conventional wisdom doesn’t always make for correct predictions. Why shouldn’t gold make you money in the short term, too?
“A lot of smaller investors think that you just buy and hold this stuff forever,” CPM Group chair Jeffrey Christian told the Investing News Network. “The price rises very sharply, they’re happy, and then the price falls back. That’s because these are markets, and this is what markets do. It doesn’t matter if it’s currency, or stock, or a commodity – prices rise and fall. If investors try to capture the up and down, they can earn better returns.”
The only way is up
Last year, the price of gold fell sharply. A lot of investors were selling, but many others were not actually buying. In fact, investment demand in 2018 was 13.8 million ounces, the lowest level since 2000, when gold was $270 an ounce. Back then, investors were convinced that the world was in a new economic paradigm where there would be no inflation or recession, and hence no reason to own gold. In a nutshell, they were spectacularly wrong.
But as investors have left the gold market, banks have moved in. “Central banks bought about 16.5m ounces of gold which was again half as high as 2017, and three times what they had bought in 2015,” says Christian. “They probably will continue to stock up on gold until investors come back and bid the price up.”
Right now, he believes that we’re close to the bottom of the market, “as you are pretty much as negative as you can get in terms of investor attitudes towards gold at this point.” But that means the market can shift up, and shift quickly.
What might cause that shift? It’s always something external to gold: macroeconomic trends, international politics, domestic politics, financial market stability. Look to the world to see what will happen to gold, advises Christian.
“We are looking at a world where there are gathering problems in economics and politics and financial markets but those problems haven’t come home to roost yet,” he says. The predicted 2018 recession didn’t happen, with the US, Europe, and China all performing better than expected economically.
But there are many factors that might trigger a wave of investment demand in the near future, such as the debt market, the housing market, the auto industry, government debt, corporate debt, private debt, interest rates, and the vulnerability of the stock market.
“I think that gold is probably the most attractive investment right now in terms of potential price appreciation going forward,” says Christian. “Don’t expect the price to skyrocket this year, or maybe not even next year. But expect prices to rise sharply at some point when those economic and financial problems really start to hit home.”
The right tech
So how can investors make gold work for them in the short term – and be ready for those rapid rises and falls? In the past, buying and selling gold was clunky, to say the least. But now, new tech has put the power back in investors’ hands.
Goldex makes it possible to react quickly to world events. You can check and compare five international markets and locations 24/7: London, Zurich, New York, Toronto and Singapore, as well as buying and selling at the touch of a button. The Goldex app aggregates prices from all of the gold markets and then delivers the best available deals when buying and selling thanks to the only smart trading technology developed for physical gold.
Comprehension, not confirmation
It is obviously important to check the quality of your information. Stock market regulators demand listed companies to publish periodic accounts and reports that help analysts produce accurate research. The bond market is also surrounded by very rich and easily available data. That means plenty of quality material to gain insights from. However, there’s no equivalent information pool when it comes to commodities like gold.
Christian advises reading about the gold market to gain a greater understanding of the issues, not just seeking out confirmation of your beliefs or cementing what you think you already know – reading for ‘comprehension, not confirmation’. When it comes to making an informed decision, be open-minded and curious – and prepare to have your mind changed.
Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this it does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.