It’s important to keep in mind the reasons you’re buying the gold in the first place.
What are your goals and is buying gold going to achieve your goals? Does gold actually have the utility you think it does?
As we discussed in previous articles, the value of gold is dependent on the US dollar and the popularity of gold investing but it’s also ultimately dependent on whether or not anyone deems it a valuable exchange at all.
Gold is a currency like any other that you want to be able to exchange for value.
Given the choice, you wouldn’t want to own gold over actual resources. So there must be a catalyst that makes gold attractive, such as an economic crisis that weakens the dollar and incites fear and distrust in the markets or something that causes people to go out and buy gold en masse. Even if there was a worst-case-scenario economic crisis event and you were using gold for bartering and trade, you’d still only be able to trade your gold for goods if it’s agreed upon as an official currency or with people who have goods who deem it valuable.
There are many reasons to buy gold, enough that every person could have their own unique reason. The two main reasons we see from customers at Bullion Trading LLC are:
- Investments
- Insurance, or a hedge against things going wrong
Some people conflate insurance and investments as meaning the same thing but there is a fundamental difference between the two.
When you buy gold as an investment, you buy it because you are anticipating increased or multiplied value. When you buy gold for insurance, you’re buying it as a hedge against a risk you are concerned with. Whether or not the price goes down, the gold will still serve its intended purpose if you were to ever need to exchange it for value in an emergency.
When you buy gold as an investment, you need to ask yourself why you think the price is going to go up and your investment will yield returns.
There are many factors that can affect gold prices. What factors push you in the direction of believing the prices will rise, based on your own knowledge and intuition? Essentially, what do you think will happen that will make others feel compelled to go out and buy gold after you? What are you able to foresee about the economy early on that you believe others will eventually conclude?
Nonetheless, you ultimately want to make sure your personal reason for buying, whatever it may be, is satisfied.
Whether you think prices are going up or you want a hedge against risk, ask yourself if the gold you’re buying is effectively serving this purpose for you.
