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Investing.com - Gold: 4 Reasons to Buy This Dip

June 03, 2022
Reasons To Buy Gold

Article by Andy Hecht in Investing.com

Gold is money, and the precious yellow metal has a long history as a means of exchange dating back thousands of years. Long before there were dollars, euros, yen, pounds, yuan, rubles and all currencies floating around in the global financial system, gold was the hard asset that held value and symbolized wealth.

Governments, central banks, monetary authorities, and supranational financial institutions hold gold as an integral part of their foreign exchange reserves. Moreover, they have been adding to reserves over the past decades, validating gold’s role in the global financial system. The last significant gold sale came in 1999-2001, when the United Kingdom parted with half its reserves at below $300 an ounce. Over the past two decades, the price path made the sale look foolish, as gold is NOT the barbarous relic of the past the British believed.

Gold’s bull market began at the turn of this century, and it continues in May 2022. Gold’s appreciation could be more about fiat currency depreciation than the metal.

Gold Bull Market Over Two Decades Old

The gold bull is nothing new. Gold has been appreciating since the end of the last century.

The rise in gold’s price to the $875 level in 1980 and nearly two decades of lower highs and lower lows that ended in 1999 at $252.50 per ounce. Since then, gold took off on the upside, making higher lows and higher highs. In June 2022, the bullish trend is nearly 23 years old, with no signs of ending any time soon.

Buying Gold on Weakness Proven Optimal Approach

Gold is an integral part of many investors’ savings. Gold is an asset that provides safety and is a store of value with thousands of years of performance history.

Perhaps the most compelling reason to own gold is that governments hold the metal as part of their foreign currency reserves. Over the past years, central banks have added to reserves.

4 Reasons to Buy This Dip

At least four compelling factors make gold a critical asset for all portfolios:

 

  • History: Gold’s role as a means of exchange dates back thousands of years. It is a proven asset that is a store of value and a symbol of wealth.
  • Inflation: Governments can expand the money supply to their heart’s content. The only way to increase the gold supply is to extract more from the Earth’s crust.
  • Geopolitical turmoil: The hopes for globalism have evaporated with the bifurcation of nuclear powers. The Chinese/Russian “no-limits” cooperation threatens the US, Europe, and their allies. While the division between leading world countries could impact fiat currency values, all hold gold and respect its position in the global financial system.
  • An emerging gold standard: Russia recently declared that 5,000 rubles could be exchanged for one gram of gold. The move lifted the Russian currency’s value against the US dollar despite the wide-ranging sanctions. If China follows and backs the yuan with gold, it would not only be a return of the gold standard for two leading countries, but would threaten the dollar’s position as the world’s reserve currency if the US does not follow and reinstitute an exchange rate versus the precious metal.

Gold has respected its technical support level at the March 2021 low. The pattern of higher lows and higher highs remains intact. Moreover, the geopolitical bifurcation could lift the precious metal’s role in .......

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