You’ve surely heard the news by now: Gold is on its way up. Gold has approached record high prices in recent days, providing investors in the commodity with big returns. But some experts see reason to exercise caution before plunging into the gold market.
While short-term data on gold looks rosy and the commodity has increased in value by more than four-fold in the past decade, a long-term picture of the commodity is less flattering. The commodity exploded in the 1970s, jumping from less than $200 per ounce to more than $600. That growth was followed by a steep correction — the kind of correction currently feared by some analysts.
Note: The aforementioned long-term graph is not adjusted for inflation. If it were adjusted to reflect the value of the U.S. dollar over time, the graph would show large fluctuations in the price of gold throughout the past century, comparable to the spike we have seen in recent years.
The recent growth in value gold has experienced over the past decade means gold could potentially face steep devaluation.
The price of gold is currently hovering around $1,300 or $1,400 per ounce. Information from the World Gold Council shows that “up” periods for gold tend have historically been followed by “down” periods. On the flip side, decreases in value are often followed by sharp increases. For example, gold took a nosedive in the late 1990s before correcting back to viability in the past decade. The commodity has been hot for a full decade by now, meaning it could be due for a decline, based on past precedent.
A massive spike in the price of gold occurred between the early 1970s and early 1980s, but that was followed by a nearly uninterrupted, decade-long price plunge. The most recent increase in gold’s value is second only to the aforementioned market of the 1970s.
Where Is Gold Headed?
As the commodity nears $1,500, if gold regresses toward the mean and falls back toward its inflation-adjusted value, it could fall by nearly two-thirds of its current valuation. On the other hand, gold’s recent history is strong and the commodity shows no apparent signs of slowing down. Find information about investing in gold.
While some investors have seen gold as a solid commodity in which to invest during the economy’s crisis and slow recovery, the fact that gold is such a speculative investment could be cause for worry.