You may think that the time for gold investing has come and gone because prices are starting to decline, but that would be seriously flawed thinking. Why? While the prices per ounce did dip at the end of 2011 and the beginning of 2012, it is not because the rumored “gold bubble” was losing air or bursting. It was because there were even further shifts in the markets of the world. These shifts were not good, though, and indicated signs of even wider economic distress.
For instance, gold investing declined at the news that the S&P had downgraded the economies of Spain, Italy and France. This decline in gold investing was because those who had holdings in “paper” investments tied to the currencies of those Eurozone countries decided to liquidate and re-invest in the American dollar instead. Whenever there is a rise or increase in dollar activity, it automatically translated to a reduction in the price of precious metals.
Here’s why: most investors are always looking for a reliable form of “safe haven” investing. This means that they want to find a “place” to put their money in order to prevent it from losing value during a time of market turmoil. So, as the world’s markets have gotten a bit shaky in the past few years, more and more investors decided that heavier than normal amounts of gold investing would be a good idea. The gold would offset the risks of other asset groups and give a bit of growth.
The thing about this period of gold investing, however, was that it was occurring at a rate that had never been seen before. This drove prices higher than ever, with gold reaching historic highs in 2011. Naturally, most would reasonably assume that the prices would decline. Some believed the bubble would just burst and prices would crash while others insisted that it would be a gradual decline “back to normal”.
This is probably why so many took the recent dip in gold pricing with a shrug of the shoulders. After all, they did anticipate this would occur. The problem with that response is that gold is not actually declining in price, but is dipping due to a period of alternative market behavior. As the Eurozone situation pans out, you will see gold begin to increase again, and most experts anticipate that it will top at around $2k per ounce in 2012.