Gold prices are higher due to the fear of loss, but it is also due to other factors. A strong dollar has actually impacted gold prices. The stronger dollar weakens the dollar against all other currencies, so the demand for gold as an investment is likely to increase.
The stronger demand is likely to translate into a rise in the price, which will, in turn, help out European and Asian demand for gold. Overall, there is a strong link between economic growth and a rising gold price.
The stronger investor’s perception of risk is also helping drive gold prices higher. Gold is a safe haven asset, but the fear of loss makes people uneasy about investing in the market. In this climate, people who have stable lifestyles with less risk aversion are the most likely to invest in gold.
Emerging markets, such as China, India and Brazil, are the most likely to invest in gold. More often than not, the vast majority of investment by these emerging economies has been in stocks and bonds. In contrast, stocks have attracted new investors in the past few years.
So, what does this all mean for the well off investor? Well, it may not really matter, because gold prices will rise even if the world economy continues to slow down, and the emerging economies falter. A slowing economy would make gold much more appealing as an investment, as compared to the stronger demand.
The international investment has increased because the cash outflows from the emerging economies have increased. The current conditions are favourable to investors, not just those with disposable incomes.
Fears in countries such as Argentina, Ukraine and Russia over the last two or three years have created an investment environment that is unlikely to reverse. With gold being such a safe haven asset, there is no sense in the investor having any reason to buy gold in these troubled economies. The only place where there might be a point to invest is in a gold ETF.
Unfortunately, the potential for the creation of an ETF that is traded on a volatile exchange is relatively small, which means the great potential for the gold ETF to trade lower and for the price to rise is unlikely. So, what does this mean for you, the investor?
The investor can continue to watch the price and wait for it to rise. On the other hand, if the investor wants to get in ahead of the curve, they can buy gold using a stock or bond ETF and then wait for the gold price to rise with the stock or bond.
The investor has to be smart about their decisions regarding gold prices higher. These are the conditions when gold is going to be sold at the highest price, so it is very important to be able to spot the trends and take advantage of them.
The last thing the investor wants is to miss out on a selling opportunity. But, a few minutes before the price goes through the roof, they can be prepared for the buying.