When starting to review whether to invest in gold, we must first consider the “possibility of loss.” Although some people say that the price of gold has always been on the rise, it is actually very dangerous to invest in gold without knowing it. Because the price of gold fluctuates, it is important to understand the market price trend before taking action. Will the gold have the possibility of steep fall in price? Investment websites are all touting the charm of investing in gold, but the risk information related to the sharp drop in gold prices is not very common. Especially with the recent expansion of the new crown pneumonia epidemic, the market prices of gold, platinum and palladium have also fluctuated sharply. You must review your investment under the control of all risks. The rule at the beginning of investment is to understand the risks of the investment itself, not just the charm. This time I will explain about the collapse of the gold market before investing.
Why the price of gold plummeted
The most concern things is the “possibility of the gold market plummeting” when buying gold for the first time. Although compared with other investment targets, the most attractive feature of gold is its stability, but as long as you observe the past gold market, you can find that market prices continue to rise and fall repeatedly. In order to understand how to deal with investment targets, it is important to consider the “possibility of a plunge” in advance. Specifically, when the conditions overlap, the price of gold may plummet? Five conditions are summarized as below.
• Increased supply of gold
• Reduced demand for gold
• The world economy is stable, and the attractiveness of investment targets other than gold is rising
• Reduced geopolitical risks related to terrorist attacks and wars
• Rich people and investors around the world do not rush to buy gold
This is not limited to gold. As long as the target is large in the market and is not a commodity that many people are vying to buy, its value will fall. In addition, gold has a unique feature, that is, “Although it can deal with all risks, just holding it will not generate any rewards.” When all economic risks such as wars and terrorist attacks are low and the economy is booming, it is a more profitable investment method than holding “gold” and buying “stocks” and other investment targets. And vice versa, when people are worrying the risks of general investment targets such as stocks, investors will tend to focus their trust on gold. Especially if there are changes related to the following three points, the gold market will also change.
• Dollar Shock
• U.S. interest rate fluctuations
• The situation of the world (the tension of various countries, etc.)
Generally, as long as U.S. interest rates rise, the dollar will strengthen and the price of gold will fall. Conversely, as long as interest rates in the United States decrease, the U.S. dollar will also weaken and the price of gold will rise. In addition, world conditions will also affect the price of gold. In fact, investment news has reported the fact that gold holdings will rise when the stock market is unstable. Let us look at a few examples of past plummet.
• As the Soviet Union collapsed, the U.S. dollar rise, and the price of gold plummeted. Due to the Asian economic crisis, the price of gold in Taiwan has dropped to a record low of 267/G Taiwan dollars.
• The world financial crisis caused by the bankruptcy of Lehman Brothers. The international price of gold is USD 681/1TOZ, and the price of domestic gold in Taiwan plummeted to 704/G (October 2008)
• Investors are not optimistic about the prospects due to the Cyprus problem. The international price plummeted from USD 1,501 per 1TOZ to USD 1,360 (April 15, 2013)
*TOZ: Troy ounces. Unit for calculating the mass of gold
*Records international prices and domestic prices/p>
If the idea that “you don’t need to buy gold at all to avoid risks” spreads among the world’s wealthy and investors, a script called “gold market crash” may come true. However, just like the public perception of “gold hedging”, gold as a long-term investment target, it has unshakable trust. The world is being threatened by the Coronavirus in April 2020. It affected by the Coronovirus, investors focusing on the “safe asset” of gold have also rapidly increased. In March 2020, the international price of gold soared to USD1,691/1TOZ. Therefore, “gold hedging” has attracted much attention.
What if the mining volume increases in the future?
Gold is highly regarded because it is an extremely rare precious metal. Humans have used gold since ancient times, and a large amount of gold has been mined on the earth. What makes people curious is, “If new gold veins are discovered in the future and the mining volume increases, how will the gold market fluctuate?” Even if the number of people who want gold increases, as long as there is more supply than demand, the price of gold may plummet. The scope of mining is very limited nowadays. Through future technological reforms, it may be possible to mine more gold than it is now. But if you want to mine gold close to the crust and seabed, the cost of mining will also increase. In order to recover the cost of mining, the price of gold is bound to rise. In other words, even if there is theoretically available quantity and the actual supply quantity increases, it does not mean that the price of gold will fall. In fact, the biggest problem with gold supply is not how much resources are left, but the cost. So we can expect that even if new technologies come out to increase the amount of gold mining, the possibility of a plunge in the price of gold is still quite low. From a long-term perspective, gold still maintains a stable market price. But because the gold market changes every day, the amount of yesterday, today, and tomorrow will be different. If you plan to buy or sell gold, you must confirm the market price at any time. From a long-term perspective, the possibility of a plunge is very low.In the future, the evaluation of gold as an investment target seems unshakable. In recent years, the use of gold as a material for parts of electronic machines and other industries has also begun to attract attention. Nowadays, most people have mobile terminals such as smart phones and tablet computers. In the future, using gold in industry should also increase. From the perspective of human growth, it should be very difficult to live a life without gold. With the development of emerging countries, the demand for gold will remain high in the future, and the possibility of a plunge in the long run is quite low. After entering 2000, although the gold market has risen sharply, many experts still say that “the price of gold is still low.” In order to protect their assets, many investors will exchange a certain percentage of their assets for gold.
From a short-term point of view, it is also necessary to guard against the gold market plummet
From a long-term point of view, the probability of gold plummeting is quite low. But from a short-term perspective, the situation is different. Due to the movement of world funds and other reasons, market prices may drop significantly. In fact, the world gold market has been on a downward trend in recent years. Because investment targets other than gold are more attractive, many investors will sell gold for other investments. For example, like investing in platinum. Platinum is now in high demand for jewelry and automobile manufacturing, and is an extremely popular investment target just like gold. But with the expansion of the Coronavirus infection, the international price of platinum has plummeted. The main reason is the rapid increase in the number of infected people in Europe and the closure of mining plants in South Africa, the producing country. If the Coronavirus subsides in the future, international prices should also rebound. However, there is still no sign of subsiding, so it can be expected that market price fluctuations will continue to occur repeatedly. The same goes for investing in palladium. Palladium broke the record for the highest price in history (USD2,789/1TOZ) in February 2020, but demand was sluggish due to the sharp increase in the number of people infected with Coronavirus. One month later, it fell to 1,355 USD/1TOZ. Next is gold. Even if the market price of gold is relatively stable, it is difficult to avoid the impact of the Coronavirus. Although the price is still rising, it has the impression of a sharp fluctuation compared with usual. If you want to consider selling gold from the perspective of short-term investment and you want to “make profit as much as possible”, it is recommended to carefully decide the period of time to sell.
Pay attention to USD pricing
When considering the value of gold based on the “purchase price in Taiwan,” there are other factors that must be paid attention to in addition to the value of the gold itself. The gold deposit issued by the Bank of Taiwan is priced in grams and the price of the Bank Building Association is different in cents, plus exchange rate changes. Generally, gold is traded in US dollars. On the other hand, the exchange rate corresponding to the Taiwan dollar and US dollars of gold sold in Taiwan may also be different. Sales in Taiwan are traded in Taiwan dollars. It is precisely because gold is an international investment target that we must pay attention to this point. Even if the dollar denominated gold market plummets, its decline may not necessarily be the same as the Taiwan dollar denominated price. In the end, it must be judged in Taiwan dollars. In recent years, the Taiwan dollar has appreciated in value. It is related to the appreciation of the Taiwan gold market in recent years abroad. Compared with 1 kg of US dollar gold, the purchase price is 10,000 Taiwan dollars. Please understand Taiwan’s diversified situation, and then check out the appropriate time to sell.
Universal value guaranteed by chemical properties
In human history, the value of gold is constantly changing. Sometimes there will be a plunge. However, this is the result of the balance between demand and supply, and does not mean that gold itself has lost value. Its value comes from the chemical properties of gold itself. Gold is a metal that is not easily oxidized and corroded. Even if it is melted, it can be rebuilt. Gold can be called “metal that will not disappear” and its value is quite common. This nature brings absolute peace of mind to this investment target. Therefore, being rated as “lower possibility of value plunge” should be the guarantee brought by this chemical property.
Buy slowly from a long-term perspective
Beginners also want to start investing in gold! When you think about it this way, it is recommended to buy slowly after understanding the long-term rising trend of gold prices. From a long-term point of view, the possibility of gold plummeting is very low, which can be said to be a very attractive investment target. That being said, it is not means that holding gold can be rich now. If the selling time is not good, it is still very likely to suffer losses, it is recommended to use the excess funds to slowly buy on the premise of long-term holding.