In a time when practically everything is going up in price, it’s hard to find an exception. Here is one: gold prices have surged this week, but this time it’s not because of a geopolitical crisis.
In other words, the reason for gold’s rise has little to do with what we see on the news and more to do with investors’ perceptions about their own prospects for future inflation. Gold prices are also rising as U.S. interest rates go down in response to better-than-expected economic growth.
The reason for the renewed price rise is that investors are buying gold as a hedge against inflation. What’s more, their sense of urgency is growing. By contrast, last year when gold rose, it was not out of fear about uncertain geopolitical events but because “the Fed was in stealth mode” i.e., the Fed had begun to turn against its normal policies that were helping the economy and inflation had started to pick up again, says Marc Faber, editor of The Gloom and Doom Report
The reason is simple: Inflation went up last year even while economies were growing at 3%. Says Faber, “Inflation is now a reality.” The Fed’s own forecasts show that the Fed expects inflation to rise to 2.1% by year-end.
Gold bullion has risen over $135 this week to a high of $1,405.50 per ounce without an economic catastrophe triggering the move—robust economic growth notwithstanding.
A major surprise came earlier this week when the inflation rate, which had been declining in recent months, turned upward, thereby creating the need for gold as a hedge against inflation. That should have increased the demand for gold as a hedge against inflation.
Instead, it increased the demand for gold as a hedge against economic trouble –which is here today but gone tomorrow. It’s exactly that feeling of uncertainty that has created a lot of buying pressure for gold in the past few years. If you do not feel safe in your investments and life savings, then you’ll buy anything that looks like it will protect you from an uncertain future . . . even if what you’re buying is not all that attractive financially.
Since gold is now a hedge against inflation, but not an outright hedge against economic problems, I think it could still go much higher.
What To Do Next:
That’s why I recommend buying gold to protect your investments and planning for the future. The best way to do that is when it’s the most attractive price. Right now, gold is very attractive and you can put about $1,100 into it for less than $1,400 per ounce of gold. That buys you 1/3rd of an ounce of pure gold . . . roughly half a troy ounce worth of pure gold that you can hold in your hand or hide in your mattress or bank account as long as you want.
What if gold prices go down further? Will I lose my money?
No. Remember, you can only lose your initial investment if the price of gold drops below the price you paid for it. If it does, you’ll make a profit when you sell it. You can also choose to hang onto your investment instead of selling it and buy more gold with the new cash . . . or anything else that looks attractive today and tomorrow. That’s one of the benefits of owning physical gold; you’ll buy it at today’s prices no matter what happens in the future.
What is a physical investment?
It’s something that I own, not something on paper like a stock or bond or other financial security. That’s why I call it a physical investment.
Suppose you wanted to protect your assets from inflation. The best way to do that is with gold. That’s why I own gold and recommend it to my subscribers as an opportunity in any stock market downturn.
Inflation comes from the printing of money, which is the creation of a new supply and the destruction of the value of money providing it – inflation destroys the value of money destroying its purchasing power.