Is there a right time to buy gold?
The price of gold has surged to reach record highs. As this precious metal keeps moving further into uncharted territories in the global stock markets, many are eager to get a share of the profits by investing in gold. The question is: When is the right time to enter the market? And how much should one invest in gold to get a share of those mouth-watering profits?
A little history will help give us a clearer idea of why the prices of gold have risen so high this year (2020). Being one of the world’s earliest forms of currency, gold is generally viewed as an asset that tends to be less volatile than other assets. It can also be converted into liquid cash relatively faster than other assets. Consequently, it is commonly referred to as a safe haven in times of turmoil and economic uncertainty.
However, when viewed in the short term, gold prices can be quite volatile. There are days when prices are seen to jump by up to 10% and then drop by up to 15%, all in one day of trading! As a result, it is not advisable to pursue a short-term investment strategy when it comes to gold.
In the long run, the story is different. For example, in 2011, record high gold prices reached $1900 an ounce. If gold was bought then and kept until today (Aug 2020) it would have still been able to see an increase in value (reaching about $2100 an ounce). Therefore, the price of gold at the all time high was still able to give a profit after approximately 9 years of holding the asset.
In my opinion, gold should be viewed more as an insurance policy than an investment vehicle; in times of uncertainty, when most other investments are seen to lose value, gold would appreciate to cover losses of the other assets. Keeping in mind that physical gold, unlike most other investments, offers no cash flow returns in terms of periodic dividends, and may be problematic to store safely, my recommendation is to allocate between 5-20% of your investment portfolio to this commodity. Of course it is always best to consult a professional investment advisor to determine what sort of allocation is most suitable for your personal requirements and expectations.