In an effort to counteract this problem, the Federal Reserve set interest rates to record lows. Additionally, governments began using stimulus programs to flood the system with paper currency. Various central banks employed quantitative easing. This radical monetary technique is used to push interest rates below zero.
Sudden increases to the money supply often cause inflation. Investors worry about their holdings when changes to the monetary base inflate the prices of assets. This can reduce the purchasing power of paper currencies. Since most currencies are no longer backed by gold, defensive investors rely on hard assets to protect their portfolios from inflation.
As a result, the price of gold surges. If you are holding significant amounts of this scarce resource, you may find yourself asking, “Should I be selling my gold?”
The answer to the question lies in your specific motivation. If you are in need of quick cash, buyers will offer huge sums for gold. For people with scrap jewelry and unpaid bills, this might seem like a convenient solution to a pressing problem.
Nevertheless, long term trends in the economy may cause the price of gold to continue to rise. Many economists expect an impending crash in commercial real estate values. As businesses default on commercial property loans, banks will fail. This will result in a contraction of the monetary base. When the monetary base contracts, the price of gold drops.
However, stimulus funds take years to reach the economy. Governments have pursued policies that are expanding the monetary base to unprecedented levels. While bank failures are likely to cause contractions, these stimulus programs and quantitative easing measures will cause serious inflation. Some experts are predicting economic calamities that range from stagflation to hyperinflation. In both cases, gold prices will rise.
Under inflationary conditions, consumers struggle to pay for goods and services. While incomes stay the same, prices rise. In some cases, workers leave jobs due to incompatibilities between the rate of pay and the prices of consumer goods. This can lead to worsening unemployment figures.
Furthermore, inflation dilutes the buying power of funds held in savings. Some savvy investors hedge their investments by including hard assets like gold and silver in their portfolios.
When gold prices rise and fall quickly, some investors make money by flipping gold. Essentially, this is a form of speculation that allows an investor to profit by helping people shift into and out of asset positions. Since cash-strapped consumers might sell unwanted jewelry below the market value, a savvy investor could purchase gold for immediate resale. When prices change on a daily basis, these transactions might yield significant profits. Some individuals make thousands of dollars per week by flipping gold. However, speculation is risky. Extra money should be used for such experimentation.
Ultimately, you should only sell your gold to acquire cash for immediate necessities or safe investments. While current prices are high, they may surge to unprecedented levels when stimulus funds work their way into the economy. If inflation occurs as a result, your asset holdings will protect you against weakening fiat currencies.
Bret Dashel is a senior copywriter for Ratelines.com. For nearly 6 years, Ratelines has been an objective and reliable source of financial information. For factual advice on top cd rates or low-low mortgage rates, please visit our site.
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