As of September 10, 2024, the price of gold has seen an impressive growth of over 3% from just a month ago. Gold continues to be a preferred asset for many investors, particularly for those looking to protect against inflation. When inflation rises, the purchasing power of currencies like the U.S. dollar diminishes, but gold generally holds or increases in value over time. For those looking to maintain and build their portfolios, owning gold—such as in a gold IRA—can be a strategic move. Not only does it help preserve the value of your investments, but it also serves as a hedge against market volatility.
Dennis Shirshikov, a finance professor at City University of New York, highlights that gold has intrinsic value and tends to retain its worth, making it a stable store of value during economic uncertainties. Additionally, gold’s liquidity makes it a favorable investment since it can be easily bought and sold in the market.
Understanding the Historical Context of Gold Prices
Gold is often chosen as a safeguard against inflation. As the prices of goods and services rise, the purchasing power of currencies typically declines, but gold often appreciates in value. Investing in gold allows you to preserve your portfolio’s value, grow your assets, and shield yourself from market fluctuations.
However, when comparing long-term returns, gold tends to deliver lower average annual returns than stocks. From 1971 to 2024, the stock market had an average annual return of 10.7%, while gold’s average annual return was 7.9% over the same period.
Spot Gold and Its Importance
The spot price of gold represents the current rate for buying or selling gold in over-the-counter transactions. Monitoring the spot price provides insight into investment trends and gold demand. A rising spot price signals increased demand, while fluctuations in the spot price are influenced by various factors, including supply and demand dynamics.
Unlike futures contracts, which involve transactions at a future date, the spot price pertains to immediate sales. When the spot price is lower than the futures price, this scenario is known as contango, often occurring with commodities that have high storage costs. Conversely, when the spot price is higher than the futures price, it’s called backwardation. Market analysts believe that prices will eventually align with futures prices.
What You Need to Know About Price Spreads in Gold Trading
In gold trading, the price spread refers to the difference between the price at which you can buy gold (the ask price) and the price at which you can sell it (the bid price). Generally, the bid price is lower than the ask price. A narrower spread indicates a more liquid market, which can be reassuring for investors as it reflects increasing demand for gold.
Ways to Invest in Gold
There are several ways to invest in gold, each offering different benefits:
Gold Bars: Often referred to as bullion, this option is popular among investors. Gold bars are sold per gram or ounce, and each bar’s purity, weight, and manufacturer are stamped on its face.
Gold Coins: Collectible coins, like the American Gold Eagle, are another option. Since they are collectibles, they may be purchased at a premium over the gold’s weight value.
Gold Jewelry: While gold jewelry is often bought for its aesthetic value, it is typically priced higher than the value of the gold’s weight alone.
Gold Futures Contracts: These contracts allow investors to speculate on the future price of gold without handling the physical product. Futures contracts specify that the investor will buy a certain amount of gold at a defined price on a future date.
Gold Funds: Mutual funds or ETFs that own gold assets are another way to invest in gold. The value of these funds fluctuates based on the underlying assets in the portfolio.
Is Now the Right Time to Invest in Gold?
Determining whether it’s the right time to invest in gold should be based on individual circumstances. However, diversifying your portfolio with gold can reduce overall risk and volatility. In today’s inflationary environment, many investors are turning to gold for stability. With prices reaching new highs and experts predicting further increases—J.P. Morgan, for instance, expects prices to average $2,500 per ounce by the end of 2024—this may be an opportune time to consider adding gold to your investment strategy.
Current Precious Metals Prices (as of 9 a.m. ET, September 10, 2024):
Gold: $2,514.15 per ounce
Silver: $28.48 per ounce
Platinum: $945.65 per ounce
Palladium: $963.50 per ounce
In addition to gold, silver, platinum, and palladium are popular choices among investors. While gold is less volatile than silver, silver’s extensive industrial use makes it more sensitive to economic changes. Platinum and palladium, with their high industrial demand, also offer opportunities for portfolio diversification, though they tend to fluctuate widely.
Final Thoughts
The U.S. economy has been experiencing significant changes over the past few years, with inflation affecting households nationwide. Gold remains a reliable hedge against inflation, offering various investment options to suit different comfort levels and goals. Whether you’re looking for short-term gains or long-term security, gold can play a key role in achieving your investment objectives.
