What Effect Is Political Uncertainty Having On The Price Of Gold?
Gold has been a long-standing favourite for investors for decades, but it’s also prone to volatility when things aren’t running smoothly globally. From demand, to political uncertainty, anything that unsettles investors minds can affect the price of gold and how it performs within the commodity markets. We’re going to take a deeper look at how politics can cause fluctuations in the price of gold, and when the best time to invest might be.
Why Invest in Gold?
There are several reasons to buy gold, all of which can differ from person to person dependant on their current position and experience in trading. While some tend to consider gold for a long-term investment, others might turn to the commodity as a way to make money before cashing in their investment. Regardless, political uncertainty can affect the success of any trading intention drastically. However, an investment in gold can actually work out in three different scenarios:
As a Hedge
Hedges are essentially a form of investment made to offset potential losses in another class of asset. In other words, an investor may buy gold to hedge against the potential decline or volatility of a currency or stock. Gold can act as a defence against inflation for this reason, but often requires fast movement to truly reap the benefits. For example, if a stock market began to crash, an investor could sell their stocks and buy gold. From here, as the stock market began to recover, they could sell the gold and move back to the stock market with their profits.
Those who are investing in risky ventures can benefit from having a safe haven and gold acts as precisely that. An investor would buy gold, even as the prices continued to skyrocket, and could go on to sell this when needed. Alternatively, it acted as a way to either make a profit, or hold onto potential profit in the future if things began to recover. Essentially, buying gold as a safe haven gives you a financial buffer, even when stock markets are volatile or crashing.
While buying gold as a direct investment isn’t as common, those wanting to buy gold for jewellery, technology or just as a finite valuable substance, as well as those who are investing solely for the future increase in the price of gold, direct investors often have their reasons for doing so. Of course, gold is held by governments and some individuals as a show of wealth.
When Does the Price Increase?
Gold’s position as a hedge or safe haven means that when political uncertainty comes around, the price of gold shoots up. More and more people will invest in gold as an immediate reaction to political turmoil, leading to increased demand and, of course, increased price. One example of this is the Eurozone crisis that has affected Europe since 2009. This debt crisis has wreaked havoc on the continent, but it was in 2011 when gold hit an all time high, at $1,895 per ounce. The sudden drop in value of the Euro devastated countless countries, plummeting them into debt. Investing in gold allows for bigger profits in the long run, due to its considerable stability when compared to other forms of asset.
How about a decrease?
If the price of gold is decreasing, this typically means that the stock and commodity markets are performing relatively well. With the economy in a good financial state, those thinking of long-term investments or a hedge or safe haven for the future could consider purchasing gold while the price is at its lowest. Currently, gold sits at around £33.70 per gram, offering investors the perfect opportunity to purchase gold at a lower price as a safeguard for the future, or a potential long-term investment opportunity.
While gold may not be right for every investor, those looking for a profitable investment for the long-term future could benefit from purchasing this particular commodity while it’s at a relatively low price. Direct investments with not only gold, but oil, mining and other hard assets can build up a strong portfolio for any investor.