Is Gold a Good Investment in Today’s Economy?

Investors have long considered gold a “safe haven” in times of economic, geopolitical and financial instability – conditions that are present today. The world economy has slowed dramatically. There are political skirmishes around the world. And the financial markets have plummeted.

Inflation and currency devaluation also tend to be good for gold, and those conditions are also present today. When the U.S. Federal Reserve Board (the Fed) is concerned about the economy (as it has been recently), it lowers interest rates and sells U.S. government securities, which inflates the U.S. money supply and creates excess “liquidity” in the money markets. That liquidity tends to lead to inflation, which is good for gold. It also tends to dilute, and thus lower the value, of the U.S. dollar – and gold prices normally rise with a fall in the U.S. dollar.

Not surprisingly, gold prices are high today.

The question is, could they stay high? Many investors think the Fed will stop at nothing to boost the economy, which could be bad for inflation and the U.S. dollar but good for gold.

On the other hand, the Fed is likely wary of going too far, which could create its own problems. And even if it wants to continue, at some point the Fed will exhaust the tools at its disposal. This would decrease the money supply and could lower the price of gold.

It’s something to discuss with your financial advisor., who can help you determine if gold is a good investment option for you, and if so, how you might invest in it.