Have you seen gold prices lately? They are rising, and they're about to enter bull market territory.
On Monday, gold hit the highest price point in three months, bringing it quite close to what many analysts would consider a bull market.
The Middle East tension and the U.S. decline in home sales have pushed gold prices up 1.8% on Friday to hit $1,406. Prices have risen around 19 percent since the lows in June.
According to CNBC, a 20 percent raise to $1,416 would put gold in a bull market. Numbers released Friday showed U.S. home sales have declined, which could indicate the economy isn’t improving as much as most people hope. Geopolitical issues and the high demand for gold are also factoring in.
In addition, the Federal Reserve may soon announce tapering for its stimulus program, so be sure to keep this mind as you consider gold.
Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund, told MarketWatch:
The weak U.S. data is leading some investors to believe the Fed will not be tapering imminently, and ‘no taper’ would be supportive to precious-metals prices.
If there’s another surge in precious metals, particularly gold, it’s likely prices will reenter the bull market and make many investors happy.
Gold Demand Around the World
Demand for gold is high right now, particularly in Asia. In the second quarter, jewelry demand in the continent rose by 37 percent, and it doubled in China and India. Coin demand has doubled as well.
But India has raised import duty costs to try to stabilize its economy, and this has started to push prices up. This could start to hurt demand going forward.
Still, China is buoying physical demand, but the same can't be said for gold miners. Mining shares have been slow to increase, failing to follow bullion prices. Data provider Datastream has found gold miners have fallen 58.9 percent since September of 2011, the Financial Times reports.
Head of Barclays' metals and mining David Butler told the Financial Times that the only two UK miners still holding their own are Randgold (NASDAQ: GOLD) and Fresnillo (LSE: FRES). They haven’t seen as bad of a drop as most of the others. Still, gold miners aren't yet following gold's upward trend.
To Diversify or Not Diversify: That’s Your Question
Is it time to diversify your portfolio with gold? Some analysts say the financial crisis isn’t over yet, so yes, it’s essential that you seek gold over paper money to protect your portfolio from the volatility of the global economy.
Other analysts, such as Elroy Dimson, Paul March, and Mike Staunton of London Business School, don't believe gold will always protect you from inflation, as the Financial Times reported:
Gold has a potential role in the portfolio of a risk-averse investor concerned about inflation. However, it does not provide an income flow and has generated low real returns over the long term.
While this may be true, there’s no denying that demand is high. And the conflict in Syria is escalating, which will likely lead gold up higher.
That means if you invest now, you could see prices climb enough to provide a hefty return on your investment. This sounds much better compare to some of the drops you’ve seen with your stocks, right?
Gold may not be perfect, but prices are still down, so it could cushion your portfolio once they begin to move back up. Throughout history, we’ve seen gold remain resilient through economic woes, and it won't likely be any different this time.
Research the history of gold so you can see how resilient it is for yourself. You may be surprised at how – even though it’s had its decreasing moments – it never goes past its lowest points. It's on the upswing now, so it’s good for short term and long term investors.
What should you choose for gold investing? Turn to bullion by purchasing coins or bars. Holding onto a tangible asset may feel better, and it provides more security than paper gold. You can also something that has intrinsic value, which is quite different from paper currency.
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