Is the Current Rise in Gold’s Value the Real Deal?

Is it the right time to buy gold? The shiny metal has been a way to store value for centuries, but modern-day investors may wonder whether it’s a good addition to their portfolios.

Let’s look at how gold is performing in relation to oil. While we’re happy to see lower gas prices at the pump, comparing the cost of oil to gold historically can tell us something about the economic outlook. Some investors use this comparison to indicate rocky financial times ahead, and if that’s true, we might be in for a wild ride.

Right now, one ounce of bullion is equal to 40 barrels of oil, the highest that ratio has been in 30 years. Deutsche Bank analyst Jim Reid crunched the numbers and found that the price of gold relative to oil is higher than it’s been in 150 years, breaking the previous record set in 1892.

Why is Gold Gaining So Much Value?

There are a couple of global economic factors that could be the cause of rising gold prices besides falling oil prices.

  • China’s economic slowdown. China’s government is well-known for manipulating the country’s growth figures, and investors are starting to doubt official information. Most signs point to an economic slowdown in the world’s biggest economy.
  • Changes in short-term interest rates. For several months, the Federal Reserve has been considering raising rates, which they did by a quarter-point in December. Now there are speculations that they could reverse course and drop rates below zero. That makes bonds and other interest-driven investments unattractive. However, if short-term rates were to rise, it could cause a major market correction.

Both of these concerns over economic stability may lead more investors to gold, which usually rises in uncertain financial conditions.

Will Gold Prices Continue to Rise?

The price of gold hit a peak in September 2011, selling for $1,900 per ounce. It’s well under that now at around $1,215 per ounce, but could it rise more?

Signs point to yes. Last month, the U.S. Mint sold 124,000 ounces of American Eagle gold bullion coins, which is up 53 percent from January 2015. With demand for gold rising, the price is likely to increase. Also, gold has risen above its 200-day moving average, which is an indication that it will continue to grow.

Is Gold a Good Investment for You?

Gold has traditionally been considered a good investment to protect against inflation. Because it is priced in U.S. dollars, a falling dollar leads to higher gold prices. For all investors, gold offers a more stable investment than cash.

Despite signs pointing to gold being a smart purchase right now, you need to examine your investment plan carefully before jumping into buying gold or other precious metals. It’s worth considering the purchase of some gold to balance your financial portfolio, especially if your current holdings risk losing value in an era of potential inflation and economic uncertainty.

Talk to us for help with wealth building and holding on to the value of your investments.