Gold, a Quick Review

With more global turmoil & financial pressure since I first took a look at buying gold let us take a quick look at how our investment has done.  The spot gold price was £854 on the 18th February and today is reaching new highs of just over £900.

 

Now granted, there are purchasing costs involved but with the cheapest I found, 3.5%, an investment in gold at £854 would already be yielding roughly a 2% return so far this year.  To put this in perspective banks are offering a typical interest rate of 3% - 3.25% for a tax free ISA, gold has outperformed the banks yearly rate in under two months.  Whilst a small gold investor may have only recently covered their purchasing costs there are still another 10 months to go in the year, just how high can gold go?

Originally we were not really looking at making much of a real term profit with gold, only protecting ourselves from inflation and fiat currency devaluation, but there are whisperings which suggest that gold could shoot much higher (not anytime soon though).  There is very little doubt that the bull market in precious metals will continue so long as the Western world devalues its currencies, takes on more debt and tries to print/stimulate their way out of this mess (which could easily last several more years).  But we must also consider the current real lack of demand for precious metals amongst the general populace, even many investors are still mainly steering clear of gold in favour of the propped up stock market.  When the fiat currency problems really get under way, inflation goes through the roof and savers (the few who are left) can't get a good enough return from the banks, you would expect to see a much larger leap into gold, thus increasing the price much faster.

Once/if this happens we must begin to beware of a bubble, with over eager investors leaping into gold assuming that it is a guaranteed money maker (see the housing or .com bubbles) the real fun begins and we can ride the bubble as high as and as riskily as you like before selling and taking a nice profit, leaving the suckers with an overvalued commodity.  The real problem here however is that the currency issues probably won't be over at this point, so it would be worthwhile moving your profits into a different investment, perhaps other commodities or related stocks.  This scenario may seem a little fanciful to some and its certainly a little way off, but we are starting to see the results of inflation rear its ugly head, the Euro zone continues to struggle with debt it simply can't repay and the US still has the printing presses on full blast.  Seems to me that this is a good enough reason to stay in precious metals, but just beware of the public at large eventually catching wind and blowing up the bull (if the BBC starts talking about gold investment then it's probably a good time to start looking for a way out).

Just a little mention, take a look at silvers recent performance.  Before leaping on this wagon beware of a potential correction and read up on it first.  As before a little disclaimer, investments are risky; just because gold has had a good year so far doesn't mean that it will continue to do so.    Personally I'm in gold for the long game as I believe in an eventual explosion of currency problems and I don't want my money to be a part of it.  Predicting the market is virtually impossible we can only make educated guesses and this is something for you to make up your own mind on.