The popularity of gold makes some investors a tad nervous, particularly when its popularity is reported in mainstream media. Are we approaching a gold bubble?
Gold has been receiving special attention from investors since last year and when it hit all-time highs that interest was peaked even further. Even with all the interest in gold we are far from approaching a gold bubble.
Some suggest that even though gold has hit its all-time high you have to adjust that for inflation over the last couple of decades which would be $2,200 today. Some investors believe this is a price we will see gold hit in the future. Here’s why.
Historically, gold has always been known as a safe-haven investment because it retains value. Investors flee to gold to protect their investments.
This was true thousands of years ago when gold was a currency and it is true in times of increasing inflation and economic instability. Since the turn of the century, the United States increased their national debt tremendously, saw a significant rise in inflation and also had a rise in paper money printing which, in turn, depreciated the value of the dollar. A depreciating currency, real estate crash and rising unemployment levels has left the country in a recession and it is no wonder that investors have fled to gold to protect their investments.
Mining companies felt the pain when gold prices fell to around $300/oz. Many decided to cut their expenses and abandon all mining projects in order to cut costs and keep revenue. Now that gold has once again soared, mining companies are back in the game and moving at full speed exploring 20-30 year-old deposits with new technology as well as exploring untouched deposits.
Taking a look at global demand, you will see that China and India are the two leading countries for buying gold. In India, gold is given as a gift on special occasions and newlyweds are often showered with gold gifts on their wedding day. Some investors believe that as we see the billion Baby Boomers grow up, get married and start investing we will see gold consumption increase even higher. Of course, if Asia, India and the Middle East are doing it, the U.S. is likely to follow.
There is no doubt that investors will be watching the yellow metal very closely over the coming years and we may see gold break new records. As far as the gold rush coming to an end, it’s something that we probably won’t see in the near future.