Investing in Gold – Time to take a dip?

I started writing about investing in gold back in November 2007 (“Investing in Gold”, 15 November 2007).

It was during this period when we started seeing US sub-prime mortgage crisis unfolding before a full-blown Global Financial Crisis took hold in 2008/09. The gold price was at US$816 per ounce on 14 November 2007.

For four years, price of gold went up to hit a peak at US$1,900 in September 2011. Since then the price of gold had retreated to touch US$1,093 today, four years later.

Date Price of Gold/Ounce
14 Nov 2007 US$ 816
Dec 2008 US$ 756
3 Dec 2009 US$ 1,226
24 Sep 2011 US$ 1,639
Sep 2011 US$ 1,900 (peaked)
16 Dec 2011 US$ 1,539
20 Jan 2015 US$ 1,288
27 Jul 2015 US$ 1,093

Gold and US dollar often moved in the opposite direction. When US dollar was down, gold price rose. When US dollar was up, gold price declined. We are in this position where the US dollar is strong against most currencies. Investors and traders go for US dollars instead of parking money in gold.

Gold is used as a hedge against inflation. Where there is inflation, the purchasing power of money decreases and holding money is not a wise investment decision. Money is then invested in gold where its value can hold up better than cash. In this climate of benign inflation (low inflation) and low interest rate environment for most major economies, there is less compelling reason to hold gold. Money can be placed in other investments (other than gold) to earn a higher return in relation to low interest rate expenses.

The other factor affecting gold prices is the demand for physical gold and the supply level of physical gold. Demand for gold by China had declined in recent times and that also caused gold price to decline. (This is an area that I am not an expert in.)

Since gold had dropped to US$1,093 per ounce, is it a good time to dip our toes in and invest in gold? Is US$1,000 the floor or could gold drop to US$800 last seen in November 2007?

There are many ways of investing in gold or gold-related investments. You can refer to my blog post dated 15 November 2007. Investing in gold can start small and it is not advisable to place a huge amount in gold relative to your total investable assets.

Copyright © 2015, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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