Worried About Precious Metals Prices? 3 Reasons Not to Be

It’s easy to say that investing is a long-term endeavor, but it’s a lot more difficult to make your investing behavior adhere to that. The temptation to watch markets move day to day and figure out your gains can be difficult to overcome. And since prices of all assets move up and down as demand and supply constantly shift, it can be difficult to remain patient with your investments at times when their value has declined.

For precious metals investors, this is one of those times. Both gold and silver are still at prices far higher than they were just a year or two ago, but they’re down from last year’s highs. With a sputtering economy, massive fiscal and monetary stimulus, and rising inflation, the stage should be set for gold and silver to really take off, right? Yet gold still hasn’t broached the $2,000 mark this year, and silver remains well short of the $30 level. When will they finally start to move?

If you’re worried about the prices of your precious metals investments, or you’re worried about whether gold and silver really are good investments, there’s no reason to get anxious. Gold and silver prices move around all the time over the course of a year, and this year is no different. Here are three reasons not to be worried about the prices of gold and silver.

1. Gold and Silver Can Drop During a Weak Economy

We all know that in general, gold and silver rise in price when the economy gets weak. But that’s a generalization over the long term, over a period of years. There are specific instances in which gold and silver can drop in price even when you would expect them to rise in price, and we may be seeing that play out right now.

Remember that during the 2008 financial crisis, stock markets peaked in October 2007 and reached their lowest point in March 2009, losing nearly 55% of their value. Gold, by contrast, rose 25% during that same period. But in 2008 it lost a significant amount of value within that year.

Gold started 2008 at a little over $850, and quickly rose to around $1,000 as the economy’s weakness began to be realized. But then gold sputtered and began to lose steam. It continued to fall along with stock markets, at one point falling to just over $700 late in the year. But from then on, gold continued to rise and never looked back.

What we often fail to realize is that it’s not just gold bugs or committed gold investors who invest in gold. Many mainstream investors and financial institutions hold small percentages of gold as a hedge or as a liquid asset. When times get tough, they may start selling gold to raise funds.

That’s what we saw in 2008 as financial markets began to break down and companies and investors needed to raise money. Since the gold market is highly active and highly liquid, gold was one of the first assets liquidated to raise cash. And that’s what we could very well be seeing today, as institutions looking to raise cash are selling their gold in order to drum up money.

If the pattern today ends up being similar to 2008, then we could see gold drop when stock markets finally enter correction territory, but then rebound as investors flock to gold’s safety. If your time horizon for investing in gold is years rather than weeks or months, you shouldn’t have anything to worry about from short-term drops in the gold price.

2. Rising Inflation Should Benefit Precious Metals

With trillions of dollars of fiscal and monetary stimulus having entered the economy over the past year, money supply figures have rocketed upward. The effect of all this new money in the financial system is being reflected in higher prices across the board. From houses to cars to food, prices remain elevated and will continue to rise in the future. Even the central bankers at the Fed, who are normally loath to admit that their money creation results in rising prices, are warning that we could see higher inflation for many months to come.

Higher inflation has traditionally resulted in higher prices for precious metals, as investors worried about the bite inflation will take out of the purchasing power of their assets seek the safety and soundness of gold and silver. If inflation gets too high, like it did during the 1970s stagflation, gold and silver could rise significantly.

3. All the Fundamentals Remain Intact

The clearest reason to remain bullish on the long-term outlook for gold and silver is the fact that all the fundamentals remain intact. Supply fundamentals for silver indicate mild shortages of physical silver in the coming months, while demand for both gold and silver remains strong from investors. Long-term prognostications for silver demand remain bullish, particularly as green energy sources such as solar remain in demand and will become an increasingly important part of government attempts to reduce carbon emissions.

Government spending is skyrocketing, inflation is set to rise, and the economy remains weak as employment hasn’t gotten anywhere close to pre-COVID levels. In short, the chances of an economic recovery any time soon are not that great. All the economic fundamentals are pointing to economic stagnation, higher prices, and continued high unemployment, a situation which traditionally benefits gold and silver.

What Can You Do?

If you’re already invested in gold and silver, such as through a gold IRA, you’re probably already sitting pretty and enjoying gold and silver’s price growth over the past few years. If you’re still on the fence about investing in gold and silver, now is the time for you to make a decision. Every precious metals bull market has seen its share of corrections, and very often a correction is followed by another run up to higher prices. This could be your opportunity to buy gold and silver at reasonable prices before they continue their march to all-time highs.

With the protection that gold and silver can offer your portfolio against stock market crashes, asset devaluation, and inflation, there’s no reason not to think about how they might protect your precious savings. Don’t wait until the economy really gets down in the doldrums before deciding to protect your wealth. Call Goldco’s experts today to learn more about how gold and silver can protect your investments.