The gold market rises after each crisis

Gold market as you may have noticed reacts positively to bad news. When there's a crisis, such as the terrorist attack in Paris, the gold market rallies as people start to look for a safe place for their money.

Gold marketDuring the last big recession---yes, it was a recession, but tell that to the people who lost their life savings or have been out of work since 2008---gold started climbing dramatically. The worse the economy was, the higher the gold prices climbed. As the economy recovered, up until this last crisis, the price of gold was slowly dropping.

The gold market and all financial markets react to crisis

The gold market rises, but the stock market drops when a crisis hits. Each financial market moves based on many factors. Crisis situations, recession, depression and even natural disasters affect the direction they move. However, they don't all move in the same direction. People often invest in gold when there's danger on the home from or implied danger and remove their funds from what they perceive to be riskier investments, such as stocks. 

You'll not the word perceived is used. Even though the stock market may drop, it doesn't mean the event or catastrophe had any effect on the value of the company or their profits, but the stock price is based on perception, what people believe to be true not what is necessarily true. When natural disasters occur, property insurance companies also may drive the price of stocks down by selling stock to pay claims. While the stock market may drop in varying degrees or days when a crisis hits, the price of gold rises.

Why the price of gold rises

Gold market is considered a safe investment in times of trouble. That doesn't mean people don't lose money when they invest in gold; what it does mean is that gold is a commodity that has always had value. If a government goes bankrupt, its currency will be of no value, but an ounce of gold will still be a commodity that you could trade to cover your needs. While most crisis situations never get to that point, it doesn't mean that people look at any situation logically. 

Gold has always been the go to investment in bad times and investors that make the most money know that. Most people don't actually invest in gold bullion or gold coins but do invest in either the commodities futures market, gold mining stock or EFTs based on precious metals or just gold. Ironically, these markets would probably close, at least for a while if there were a crisis of great proportion. The value of the investment fluctuates in these markets and may be riskier than owning a bar of gold, but far easier to trade and control.

Gold can boost your overall return

The key with any investment is knowing when to buy or sell....or as Kenny Rodgers might say, Ya' gotta' know when to hold 'em and know when to fold 'em.” You don't have to buy gold and hold it until the next great recession. The market in gold fluctuates daily. You can make a smaller return on your investment by noting that fluctuation and taking advantage of it. Buy low, sell high is the dream and goal of each investor, no matter what the investment. Investing in gold is no different.

Should you invest in gold?

Investing every cent you have into gold market is as foolish as investing everything into one stock. But not as foolish as putting your money under the mattress because you're afraid of losing it. Taking a portion of your investment funds, such as approximately three percent, and investing it in gold provides more diversification. Be aware that you may have more gold than you think, particularly if you own mutual funds or ETFs.

Investing into the gold market can be risky, but some investors love that about gold and other commodities. They keep separate funds just for those types of investments and use that investing as their form of entertainment. It's far more precise than going to the casino and provides hours of fun and education for them. In cases such as these, the funds are not included in the three percent.


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