In turbulent contemporary times, investors tend to be more and more conscious of the fact that times of inspiration, speculation, feeling in the financial markets have passed. And if not passed, at least changed. You buy today, you sell tomorrow. Or you buy now, and sell later. It’s crazy! You can barely think about long-term investments. I mean building a portfolio as a wedding gift for your children. Unless you are a genius…but who believes in geniuses of financial markets? Oh, yes. There is a group of so-called geniuses of the 2001.
I’m sure that the first thing you must be thinking of is the real estate. And yet, compared to the real estate, gold has been going way above imagination! I think the most appropriate approach is history-connected. I mean...ok, these guys might as well have been geniuses, but even if so, there must have been a “flashing star” , a divine source of inspiration, something.
In every pre-recession period, there is this longtime myth of gold saying that “gold did not fall during the Great Depression”. True indeed, just that the 1930s experience is economically irrelevant for our times. What happened next? Well, gold fell in the 1974/75 recession. Began to rise by almost 50%, and again fell in the 1974/75 recession. Again fell in 2000 prior to the 2001 recession. It was high time people knew how it worked! And there arrived the geniuses investors! In the 2001s they bet on gold. And they did right. After 20 years of undervaluation, gold got back on its track. And in the last 7 years, we have assisted to remarkable changes, exhibiting any expectations. $268 in February 2001 to $960 in February 2008.
What should we learn from that now? Well, it’s quite clear: on one hand, in the recession time, price tends to fall. Why? Because people are desperate for cash. They fear. The marginal sellers become more active than the marginal buyers, and, like for every market that responds to supply and demand, the asset holders see their assets going down. On the other hand, in times of high price inflation gold is bought as a store of value, naturally leading to a support for the price of gold.
There’s just one “detail” to clarify. What are we heading to? Analysts see different messages from the Fed, trying to choose the most relevant between recession and accelerating price inflation. Looking back, it makes sense now. I think it won’t be the case about talking of a new generation of geniuses. We just have to stay posted, there’s one way or the other.
For the better times ahead!