Gold and silver: Are they commodities worth investing in?
Gold values reached a 3-month high in the first week of June, according to reports by CNBC. As trade wars between the US and its partners China and Mexico heat up, and the global economy slows down, investors are looking to buy gold and silver as a potentially safer haven for investment. Some optimistic expert predictions forecast that gold may continue to rise, potentially reaching $1,400 – $1,500 an ounce by the end of the year.
Silver has also seen some encouraging increases too, with a rise of 17.3 cents to $14.74 an ounce. By contrast, the Dow Jones and S& P 500 were both down in May, as stocks took a rough ride in response to US trade war tensions around imposing tariffs on US imports. The value of the US Dollar also dropped, making bullion a comparatively attractive investment.
Gold and silver are commodities, which can fluctuate significantly in value. Traditionally, commodities were traded at a guaranteed price, which was agreed in advance to help farmers know how much they would receive for produce such as a bag of grain for example. The traders would make their money from buying the commodity at the guaranteed price, and selling it later at a higher one. In this way, traders hope to make considerable gains over a short period from a rapid price rise, as we have seen with gold and silver recently. The value can, of course, drop though, meaning traders lose their money.
Whether the rise of gold and silver will continue remains to be seen, as trading in commodities is traditionally viewed as riskier than trading in stocks and shares. Fears of an economic slowdown across the globe has seen manufacturing drop to the slowest pace of growth for 2 ½ years, as factory outputs from Asia and Europe decreased. This could be an early indicator of recession.
The last time we saw a global economic crisis was in 2007 when the banks collapsed. At this time the value of gold increased, as demand grew for this finite resource, pushing its value up.
The value peaked in 2011 when gold rose from around $500 an ounce to $1,800 an ounce over this four-year period. This may make it seem a highly attractive investment in the current economic climate. A further advantage of gold investment is that if paper currency inflates, gold tends to retain its value.
There are however some downsides to be aware of. Gold only provides an actual income when you sell it, as opposed to other investments such as land or property that can continue to make you money while you own it. The historical returns on gold in the long term are also not great compared to other investments. For example, if you had put $10,000 in gold and $10,000 in bonds 200 years ago, your gold would now be worth £26,000, whereas your bonds would be worth $8,000,000.
Gold has recently provided some encouraging returns, and so has silver to an extent, however, the value of both are prone to fluctuations, and long-term returns are low compared to other investments. Gold investment has proved to be a great quick win, although in an economic climate similar to today’s, and therefore could be worth a punt.