The price of gold has not experienced a sharp drop for almost two years. The largest decline in price since October 2008 was 10.6 percent and the largest pullback thus far during summer has been 8.2 percent. This is good news for those who hold the precious metal but it causes prospective investors to pause and consider whether now is the right time to make a purchase.
The answer to whether it is a good time buy gold depends on whether the investor already has enough gold in the portfolio. The term “enough” is vague, so let’s clarify. It represents an amount that will provide adequate protection to your assets in the case of a catastrophic political or economic event.
If an investor does not have a minimum of ten percent of investable assets, or two month’s worth of living expenses, in gold then the recommendation is to buy. This advice should be qualified by saying that the individual should not borrow money or use leverage to make the purchase and he or she should also not spend recklessly. Once the ten percent goal is achieved, investors should begin working toward 20 percent. They should keep buying until one-third of all assets are held in different forms of gold.
Looking at a nine-year price chart for gold reveals that the price is near a nominal high. The peak prices for gold have not yet been achieved. Five years into the future, there are a many things that can happen. If gold reached the inflation-adjusted high it experienced in 1980, it will peak at $2,400 per ounce. A government attempt to use gold holdings to cover the cumulative deficit in foreign trade would cause the gold price to hit $32,000 per ounce.
More realistic than either of these is that gold will track a path similar to what occurred in the 1970s. This will put the price of gold at around $6,214 per ounce in 2015. That makes the thought of buying gold today at $1,200 per ounce seem like a good idea.
Source: Clark, Jeff. Casey Research. You’ll Buy Gold Now and Like It!
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