- 17 Jan 2023
- Precious Metals
- Comments: 0
Gold is an extremely popular investment, but there are different opinions on what might happen to gold in the next few years. Some predict it will go up in value, while others think it'll just stay where it is. Nobody knows what will happen, but you can use a little bit of information to make a better decision.
The first thing to consider is the current value of gold. It's always good to look at where something has been to predict where it might go. Gold has been one of the most stable investments over the past few years, but it does fluctuate a bit. In 2017, gold remained exactly where it was in 2016.
However, 2016 wasn't nearly as good as 2015, when gold jumped by 11%. This shows that there's no real way of knowing what will happen with gold investing because it can rapidly change from one year to another.
The second thing to consider is how gold will perform compared to the US Dollar. This is important because, often, investments are tied to the US dollar in one way or another. You can use this information to compare the two and determine whether or not it's a good idea for you personally.
In 2016, gold was $1,136, and silver was $18. In 2017, those numbers grew to $1351 and $21, respectively. That's only an increase of under 5% while the dollar decreased by nearly 5%, so gold seemed stable compared to its currency.
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The third thing to look at is the recent interest rate hike. Interest rates are generally used to regulate the value of currencies, so if they go up, that tends to have a positive effect on gold.
In 2017, interest rates went up by 0.25%, the only hike in over ten years. However, if there's more than one hike in a single year, that can affect things because people are less likely to want to invest when they're not sure what's going to happen.
It is also essential to consider how much gold has been imported into countries worldwide. Although some might think this indicates how much gold a country has available for investment, it's different. For example, it is estimated that China imports between 2,400 and 2,900 tons of gold annually.
That's about 20% of the world's total production of gold each year. However, this is still a fairly small amount when you think about it, and this totals only around $60 billion annually. They might have more than enough for personal use and investment, but if they sold all of it at once, it probably would avoid causing a mild flop in the markets.
It is also important to look at how much gold has been exported. Countries that export a lot of gold are the same countries that invest in gold rather than use it for themselves, so it is related in some way. However, there still seems to be a lot of argument as to whether or not these exports have any effect on prices. They're split fairly evenly between positive and negative exports. There's nothing we can do to prove which had more of an impact, and it's better if we don't do anything at all if the numbers are so close.
We could also look at how much gold the world's central banks have. The IMF has estimated that global central banks hold between 1,900 and 2,400 tons of gold. Interestingly, it's estimated that all of the world's central banks' reserves combined are only around 3% of global GDP.
This means there are a lot more central banks out there than you'd think, and they're probably using these gold reserves to hedge their currencies against another country in which they might lose faith. We won't find much information on this topic because it is so secretive, but most of these central banks don't have that much in their reserves; it's a big deal.
These numbers are also pretty useless as they are based on varying assumptions, and it isn't easy to make an accurate prediction. We can use the information we have to make an educated guess, but it's better if you don't try. You can only turn up your nose at the first suggestion for a few years and then promise that you'll stick with whatever you pick.
Gold Prices Historical Overview
The metal's history and price movements are important in analysing its future. A lot of people don't realize that gold is not at all rare in the Earth's crust. However, it is fairly rare to find it in abundance, and there needs to be more debate over how much is available. That being said, some general guesses are fairly accurate. There are estimated to be around 187,000 tons of gold available worldwide.
Over the past 200 years, there has been a steady rise in gold prices. The average increase over this period is around 6% per year. It's been consistent enough that plenty of studies suggest that this could be a cause for concern and not just a variation in price. In any case, all we can do is keep an eye on this trend, but it's pretty hard to predict anything so uncertain as the future.
In 2016, the price of gold was 11% lower than it was in 2015. This shows that there can be some drastic and unexplainable swings in the value of gold depending on what happens worldwide. That being said, this also shows that if even a fraction of the population decides to set off a panic by selling all their gold, there could be a huge price dip and nothing you can do about it.
Although the US dollar has been on a steady decline since 2003, so has the price of gold measured in dollars. The two are fairly close together, and there isn't much difference between them. However, if you look at the price of gold in dollars since 2000, you'll find that it has gone up by nearly 500%.
The price rise was partly due to the US Dollar strengthening against key currencies. In 2012 and 2013, many people became worried about inflation, and the US Federal Reserve began raising its rates, resulting in other countries following suit to combat it.
The dollar strengthened against other currencies, causing gold's value to increase. It would only be fair for me to discuss something like this by looking at the long term, and the better way to look at it is by year.
Looking back at the past ten years, gold has had a pretty good return on investment. In fact, it's returned 14% yearly, which is right around the average for stocks. Although it's okay to invest in gold, it might not be your best choice if you're looking for something with a good return on investment.
This is because so many investments are far more profitable than gold over the long run. A 10-year chart will give you a good idea of how gold has performed.
The most profitable investment over the last ten years is Dow Jones. If you invested $10,000 into it on January 4th, 2005 and sold it for $10,000 on July 4th, 2015, you would have made a total of 1427%.
That's a gross return of 1427%. However, if you invested in gold instead of the stock market in that same ten-year period, it would have returned less than half that and only 1200%, to be exact. That's still a lot more than just getting money back from your investment in the stock market but not very much at all when compared to other investments.
Factors Affecting Gold Prices
Anyone who tells you that they can accurately predict the price of gold is probably lying. Too many factors are involved, and it's impossible to account for everything. However, some factors do have an impact on its price.
One of the biggest effects has to do with interest rates and inflation, and another would be what's going on in the United States dollar and how it correlates (or not) with other countries and their currencies. Gold is a hedge against inflation, so if you're considering buying some, then the best place to do it would be in your own currency, but you should still purchase gold in other currencies.
Inflation is an increase in the prices of goods and services that are directly connected, and it is not the same as the general growth rate. The values of gold, stocks and bonds have increased.
All this indicates that inflation could be coming down the pipeline sometime soon, but we see no signs of it happening now, and if it were to happen, there's no telling how high those rates would get.
Interest rates play a big role in gold's value because they make it more or less attractive to sell at a certain time, and they can change enough so that it will affect the selling price. The fluctuations are much higher than they used to be since interest rates and gold prices have been going up and down recently.
If you look back at the history of interest rates, you can see that they doubled between 2001 and 2003. Since then, they've only gone up 2% annually in the US.
There's little doubt about this trend continuing, but there's no telling when it will stop or how high it'll get if it does continue. Interest rates are one of those things that people are always debating whether they will go up or down.
For the price of gold to go up, there has to be an increase in demand for it. Most people don't like gold as a commodity because of its price, but if it did become more popular and people started buying into it, then the demand would naturally rise, making the price go up.
Another big factor that plays a huge role in gold's value is volatile foreign exchange movements. This mostly pertains to currency conversions and fluctuations in exchange rates. If there were any major problems or conflicts between nations, this would lead to another change in foreign exchange rates which could affect the price of gold immediately.
The future of gold is uncertain, and its value can be affected by so many things. It is, therefore, essential to analyze all the variables at play and decide accordingly.
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