The economy is in shambles, and everyone wants to know whether they should invest in gold stocks. The answer isn’t as simple as “yes” or “no.” If you are looking for a safe investment that will bring some stability to your portfolio, then gold stocks might be the way to go. But if you’re looking for high returns with little risk, then it’s not the right choice. So what should you do? Read on to find out.
What Factors Will Cause Gold Prices To Climb In 2020 And Beyond?
Gold is one of the most sought-after metals in the world. It has been used as money for thousands of years, and it still holds value today, among many other industrial uses. Gold prices are affected by different factors that can cause them to climb or over time. The following will discuss some of these factors.
1. Inflation/Deflation rates
Inflation and deflation rates positively affect the value of gold. If inflation is high, this will cause people to invest in gold because it has maintained its long-term purchasing power over time and thus becomes more valuable compared with currencies that quickly lose their buying power.
On the other hand, if deflation occurs, the prices for goods and services will decrease, making them cheaper but less profitable; therefore, investors would be willing to pay higher amounts for gold since they can sell it later at a better price than before.
2. Global demand for gold from emerging markets
The most exciting thing about gold is that it’s not just an investment for the United States. Emerging markets are quickly becoming some of the most prominent proponents of owning gold, with India being one of them.
3. Political instability
The political instability in the world has increased as countries such as Greece and Ukraine have suffered economic downturns. This means there is a higher chance of those types of events occurring again, which would reward investors who hold gold stocks.
4. Turbulence in emerging markets
Emerging market economies are experiencing turbulence that is great for gold equities because they tend to be more vulnerable to currency risks than developed ones. Emerging market currencies may depreciate against the U.S dollar as foreign capital exits these developing nations, making it an ideal time to invest in quality gold companies at low prices.
Stocks in gold mining companies are appealing investments
They are expected to produce high earnings, they can be purchased at a discount, and the prices could rise quickly. There are two main reasons investors should consider investing in gold mining companies: commodity price fluctuations give them great opportunities to purchase low-priced stocks during times of falling prices or sell when there is an increase in demand for their products.
Gold mining companies have been volatile since they are dependent on commodity prices to produce their profits. The price of gold has fluctuated from $252 per ounce in 2001 to a high of almost $1900 an ounce in 2011, and as recently as 2016, the price was around $1200 an ounce. This means that if you purchased stocks at the wrong time before a big change in market conditions, it could lead to significant losses for your portfolio.
To be successful with investing plans, investors must understand how commodities work because many different industries depend upon them directly or indirectly, including agriculture producers who use agricultural inputs such as fertilizers and equipment manufacturers that rely on metals like steel. In order words, when there is an increased demand for one industry type – say the housing industry – it will increase demand for metals and other raw materials needed to be produced in houses.
Gold mining companies have been popular since the first gold coins were minted more than 2500 years ago in Asia Minor, now Turkey. In modern times, investors turned their attention towards these stocks during the financial crisis of 2008-2009 because they declined from $884 an ounce at peak prices down to a low of around $700 per ounce due to weakening economic conditions worldwide as well as increasing supply from China.
Investors interested in investing with a goal of capital appreciation must know that this strategy does not generate substantial returns or provide stability beyond short-term gains generated by changes in market sentiment about individual stocks.
The Bottom Line
Gold has been known as money for thousands of years. It is considered to be one of the safest investments today because it’s independent of any government or central bank, so if something were to go wrong with our economy, these institutions would not have control over gold prices like they do with fiat currencies (i.e., paper currency that was once backed by a commodity like gold). No matter what happens in the future, there will always be demand for precious metals since people need them for jewelry and other industrial applications; therefore, their values are unlikely to disappear completely even during economic downturns or recessions where stock markets often take major hits.