Should you buy gold when the price drops?
After weeks of near-record-high gold prices, it looks like things might be cooling off. Just a couple of weeks ago, gold spot prices hit $2,042.49 per ounce, approaching the all-time high of $2,069.40 set in 2020. Today, they're down to $1,989.80, and experts say they may continue falling.
With gold prices lower — and potentially going lower still — is now the time to buy? Or should you wait and see what happens, particularly with a potential other interest rate hike on the horizon? That's what we will explore in this article.
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Should you buy gold when the price is falling?
Gold is a smart investment in any economy because of its many benefits:
- It's a hedge against inflation
- It's historically held its value over time
- It can help you weather economic turmoil
- It diversifies your portfolio
- It's highly liquid compared to other assets
In other words, gold is a safe bet, whatever state the economy is in. So, why should you buy it when the price is going down?
As the old investing adage goes, "Buy low, sell high." The simplest way to earn a return on your investment is to buy when prices are down and sell when they go back up again. The lower the cost of gold, the higher the potential profit when demand increases.
Plus, gold tends to be worth more when the dollar is worth less, making it a helpful source of backup cash in tough times. The less you purchased it for, the higher the potential return you'll get when you cash it in. The same goes for holding it long-term to balance your portfolio — the cheaper you buy it, the greater your returns will be.
Whatever your plan or ultimate use is for your gold investment, "buying the dip" (as they say in the stock market) can help you secure this investment at a lower price.
How to invest in gold
Experts recommend keeping 5% to 10% of your portfolio in gold to get the most benefit from its dependable returns while also leaving room for riskier assets to deliver higher profits. You can invest in gold in many ways, from physical gold to futures.
Be sure to take the time to understand the pros and cons of each and determine which best fits your investing golds. Consider any fees you might incur, such as storage fees for physical gold and commissions for gold ETFs and mutual funds. Also, be sure you understand how gold is taxed so you can hold onto more of your earnings.
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The bottom line
Whatever gold's price, there are plenty of reasons to invest in it. That said, when the price is low, you have a greater potential for returns. As with many purchases, if you can buy it for less, you should seize the opportunity.
