I have explained in some of my other posts, like here and here, , that the gold price has increased by over 560% in the past 30 years. There are two questions here:
- Why does the gold price go up?
- Will the gold price keep on going up?
I will answer the second question in another post. In this post, I explain why the gold price goes up in the long term. The price of gold increases in the long term for various reasons, including:
Inflation Hedge:
Gold is often seen as a hedge against inflation. When the value of currency decreases due to inflation, the purchasing power of gold tends to remain more stable, making it an attractive investment. This process intensified after 1971 when the US dollar stopped being backed by gold: Fiat Money vs Assets Like Gold and the Pros and Cons
It is normal for the price of gold to go up because fiat money or paper money is not backed by anything. It loses its value and purchasing power due to inflation, and its weakness also causes more inflation. This means that gold price appreciation is completely normal and not unusual. Therefore, it will continue to rise, which will be discussed in another post.
Geopolitical Uncertainty:
Gold is considered a safe-haven asset. During times of geopolitical instability or economic uncertainty, investors may turn to gold as a store of value, driving up its price. It’s not only individual investors who do this; governments also collect and reserve gold to stabilize their economies and use gold when necessary. Many countries, such as Brazil and China, have been doing this for several decades. The United States of America has also been accumulating gold reserves for a much longer period. The actions of central banks, including monetary policy decisions and gold reserves, impact the price of gold and contribute to its long-term increase.
Supply and Demand:
The long-term price of gold can be influenced by changes in supply and demand. Factors such as gold mining production, jewelry demand, and industrial use can affect the market.
There is a very important fact about gold and assets like real estate: they are very limited, and their supply can hardly be increased. Earth possesses a finite gold deposit. Gold cannot be transferred from other planets, nor can it be synthesized artificially in factories. While the supply is limited, the demand for gold has been increasing every day due to new technologies that are becoming increasingly dependent on electronics and computers, which require more gold. Gold is one of the essential elements in computers, electronic circuits, servers, phones, and more. This limited supply and increasing demand have driven the price of gold up even faster over the past several decades.
Investor Sentiment:
What I explained is also well understood by investors. They anticipated that the gold price would rise, leading them to purchase more gold, which, in turn, caused the gold price to increase even further. They will likely continue to do so.
Market sentiment and speculative trading can also lead to price fluctuations. If investors believe that the price of gold will rise in the long term, they may buy more, further driving up the price.
Historical Trends:
Historical data shows that gold has appreciated in value over the long term. This historical trend can influence the behavior of investors, including governments, and contribute to the growth in its price.
Gold Is a Good Market to Focus On
The brief explanations above confirm that gold is a lucrative market to concentrate on. It is advisable to consider converting some of our fiat money into gold, at least to safeguard its purchasing power, particularly when investing in other stable markets like real estate might not be feasible: How to Grow Your Money Consistently
Learn more about how our gold program can help you grow your wealth: The LuckScout Gold Program
