subject: Why People Buy Gold And Why It May Be Time To Sell [print this page] Beginning in the early 1970s, following the dismantling of Bretton Woods, the price of gold began to climb. The precious metal enjoyed a breathtaking bull run. By early 1980, the price had skyrocketed to $850, startling investors and hard currency experts. Today, the price per troy ounce hovers even higher (over $1,150 at the time of writing).
It's worth reviewing why the metal's price has risen so sharply over the last forty years. Doing so may provide insight into its future trajectory. With this mind, we'll take a look at the reasons people buy gold. An increase in demand for any limited commodity raises its price; conversely, when people sell, the price plummets.
The Threat Of Inflation
Since the 1970s - when gold was allowed to fluctuate - the metal's price followed the rate of inflation. This may seem odd at first. After all, why would people buy the metal simply because of rising commodity prices? The reason becomes clearer with a bit of analytical legwork.
Rising prices are believed to be caused by a greater number of dollars in circulation. The more dollars there are in the public's pocket, the less value each dollar holds. Thus, it takes more dollars to buy the same products.
Many people note the decline in the currency's value during times of inflation and look for ways to preserve their wealth. These people believe that keeping their liquid assets - checking and savings accounts, money market funds, etc. - in dollars exposes their wealth to the risk of erosion. Gold is considered a safe haven because it is limited. Unlike dollars, it cannot be created arbitrarily.
As people continue to move their wealth into gold, the price of the metal rises due to the increased demand.
Perceived Future Currency Troubles
Because gold is considered a safe haven from a declining currency, those who buy the metal must believe the currency is headed for further trouble. Otherwise, they would "purchase" dollars by selling gold in order to enjoy a rise in the dollar's value. In a way, the metal's price per troy ounce is a barometer of the public's faith in a country's currency.
So, how can you determine the right time to sell your gold? When will the metal's price start its descent? That's impossible to tell with any certainty. However, the U.S. government has promised they intend to reduce the number of dollars in circulation. Were they to do so as promised, the price of gold could be expected to fall (for reasons detailed above).
If you own old gold necklaces, watches, bracelets, or pendants, and have stored them away, now may be the time to consider selling them. When the metal's price begins to fall in the open market, the value of these items will fall with it.
What To Do When You Decide To Sell
Selling your gold items is simple, though it's easy to make costly mistakes when doing so. A lot of people take their items to pawnshops and dealers only to be discouraged by the low price they're offered. Some people will then venture online and end up selling their gold to a broker. There is a much better alternative that will yield a higher payout for you: selling to a refiner.
By dealing directly with a refiner, you'll remove the broker from the transaction. The broker is merely a middleman who would buy your pieces and sell them to the refiner anyway; he or she profits on the spread between the buy and sell price. By removing this layer, you'll enjoy a higher price on the gold items you sell.
The price per ounce continues to float near its historic peak. No one knows how long it will remain there. If you have long-forgotten gold chains, earrings, and watches in storage, consider retrieving them and selling them online.
