On June 18th, 2010, gold prices hit their all-time high at $1257.20. This means the price of gold was higher and gold was more financially valuable than ever before in history. Gold was worth more than during Solomon’s day, during Cortez’ invasion of Mexico — gold set a historical record.
Even aside from our ability to invest in gold and profit, this is remarkable just from a historical perspective. Gold has never been as high as that in history — until this week. This was a remarkable week.
So what’s causing the spike in gold prices? Is gold going peaking? Is the price of gold about to plummet back to nothing? Is the price of gold high because of inflation? We’ll discuss these issues below.
Gold and Inflation
Inflation isn’t hitting us yet. We’re still seeing deflation, for the most part. What this means is companies are cutting costs to make sales right now — prices are going down, not up — your cash will be able to buy more tomorrow than it can purchase today.
This means that when inflation hits, the price of gold is still going to increase — it hasn’t even hit the inflation burst yet. If you’re considering buying gold, believe that gold is a great hedge against inflation, and believe that inflation is inevitable — then this is a great time to still go ahead and buy gold.
Are Gold Prices Peaking Yet?
So why is gold going up right now? There are several reasons for this:
- Speculation. Many investors think that more bubble is going to follow. That means they’re trying to beat the crowd. So, in essence, the crowd is trying to beat the crowd. Whether that’s a good investing strategy or not is anybody’s guess.
- Safe Haven. Right now, the economy isn’t in great shape. A lot of investors don’t think it’s going to get any better any time soon — not with Captain Obama at command. This means they’re looking for financial safe havens, and keeping money in cash form isn’t a brilliant idea, especially not with the central banks behaving in an unpredictable manner. That means they’re putting their money in gold bullion, gold stocks, the gold ETF, the silver ETF, or even silver coins.
- Inflation Fears. As I wrote earlier, inflation hasn’t hit yet — and a lot of investors know this. Gold bugs who believe that inflation is going to be increasing on an incredible scale are putting their investments toward the most famous of all inflation hedges — they’re buying gold.
That’s why gold is going up. Will it keep going up? That depends on your views of investing and economics. I personally think gold is going to hit the $2000 range within the next 2-3 years, but there’s no way I’m delusional enough to pretend I can predict that with any real certainty.
So What Now?
Honestly? That’s a good question. The price of gold bounces up and down, and if you’re investing in an ETF, that means you can lose your shirt. That’s why I’m a fan of mining stocks — especially stocks that pay dividends.
When you invest in a nice, large mining company that pays a steady dividend, you can sleep better at night than the gold bugs that are worried about the ticker because they’ve bet their retirement on the chances gold has to keep increasing.
Tags: gold prices, gold stocks, mining stocks, price of gold