Gold is an excellent hedge against inflation and retains value in difficult economic times. Like most other investments, the rule of thumb is to buy gold when the price drops. Understand what drives gold prices and know the tools for identifying trends to find the best time to buy gold.
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What Drives Gold Prices?
Unstable demand and an inelastic supply make gold prices volatile. You can take advantage of fluctuations to buy gold at the lowest prices.
The basic supply and demand model shows how consumer demand for an item rises when the price decreases. But the demand for gold rises and falls depending on how events around the world affect the economy. Investors buy more gold during uncertain times and less when the economy is doing well. This characteristic makes gold’s demand unstable.
While there’s still quite a bit of gold in the ground, exploration, mining and refining the precious metal is expensive. This cost makes the supply of gold inelastic. You won’t see gold prices drop dramatically over a short period because of the relatively finite amount available.
Economic Factors to Know Before You Buy Gold
The price of gold fluctuates for many reasons, typically rising on economic downturns. To take advantage of lower prices, buy gold when the economy is stable or on an upswing, not during a stock market crash. Keep an eye on the gold spot price, which is the average bid price on global gold exchanges. You will pay a premium over spot for physical gold, depending on where you make your purchase.
There are many free online tools to analyze market conditions and determine the best time to buy gold. Online brokerages provide relative strength, momentum and moving average charts you can use to find buying and selling trends. Compare gold prices to economic indicators, stock market movements and interest rates over five or more years to see upcoming opportunities.
These companies offer quality online charts to help analyze gold prices:
- Lear Capital: Historical price charts and a Spot Price app, plus tools for investing in gold for retirement.
- Birch Gold Group: Excellent dynamic chart for comparing gold prices to stock market indicators.
- Business Insider: MarketsInsider for Gold is another excellent resource for analyzing trends.
Steady Gold Investing with Dollar-Cost Averaging
Dollar-cost averaging works well for buying gold over time consistently. This investing method is a way to put your gold purchases on autopilot when using a buy-and-hold strategy.
- Set aside an amount of cash to invest in gold. Experts recommend from 5% to 10% of your portfolio.
- Plan to invest a portion of the funds on a regular interval, like weekly, monthly or quarterly.
- Divide the total cash delegated to gold purchases by the number of investments over a given period. This number is the amount you can spend each interval.
For example, say you allocate $10,000 to buying gold on the 15th of each month over one year. Divide $10,000 by 12 months, and you will buy $833.33 worth of gold with each transaction. You can use this method to buy physical gold, gold bullion, coins or gold-related stocks.
Let an Expert Find the Best Time to Buy Gold
If you aren’t interested in tracking gold price influences, get in touch with a financial professional for help. You can work directly with a trained specialist like a financial advisor or a representative at a gold IRA company. Another option is to work indirectly with a group of fund managers who oversee a gold exchange-traded fund.
If you’re looking for a tax shelter, consider working with a gold IRA company. These firms employ specialists who work with the precious metals market. The price per ounce you pay for gold includes the service fee or premium. Ask about commissions and compare the broker’s offer price to the spot price of gold.
A financial advisor can keep an eye on gold trends for you and teach you about short-term and long-term investments. Many financial advisors can manage your entire investment portfolio, guided by your goals as well.
Fund managers oversee exchange-traded funds to buy gold and gold-related investments at the best times. Management costs are divided among shareholders and included in the per-share price. There are thousands of gold ETF shareholders at one time to keep per-share costs down. ETFs are like mutual funds with fluctuating prices throughout the trading day instead of a daily net asset value.
Many investors rush to gold as a safe haven once the economy starts to suffer, but prices increase under these conditions. As a general rule, the best time to invest in gold is when the price is lower due to a stable or increasing economy. You can use a few simple tools to review historical data and identify trends or hire a professional for gold-buying guidance.
RetirementLiving.com is not an investment advisor and does not provide investment advice.