How Long Will Gold Prices Stay Low?

After a 12-year climb, 2013 saw gold prices take their first heavy drop in over a decade. It was the worst year for gold since 1981, falling around 25% against the US dollar. And many expect further decline, with investment banks J.P. Morgan, Goldman Sachs and Morgan Stanley all predicting extended losses for 2014.

Fairly speculative predictions, but one thing is clear: 2014 already shapes up as a great year to invest in gold. Research form BullionVault suggests the same. With 43% of investors having increased their holdings in 2013 and just 14% reducing their gold allocations.

So what does this mean for pension funds and investment?

Gold insurance

“The first rule of investment is preservation of capital,” according to Telegraph Finance Editor, John Ficenec. Gold is the best insurance money can buy against economic uncertainty. Gold prices soared over the last 13 years as the global economy nosedived and confidence in national currencies weakened.

When times get tough, people turn to gold because it consistently retains and increases its value over time and when economies start to tumble, gold prices rocket – as we’ve seen over the last decade.

So why the decline?

If gold prices soar during economic troubles, it’s no surprise they decline when things pick up. And that’s precisely what we’ve seen over 2013. The UK economy is finally showing signs of genuine recovery. While gold’s biggest rival – the US dollar – had a strong year too.

As the economic picture gets brighter, investors turn to the equity market and developed economies. Investor portfolios will have allocated larger holdings of gold throughout the crisis, as a safeguard. And now things have improved, more investors are prepared to reallocate to higher risk investments.

Time to invest

Naturally, you want to invest when prices are low. And it’s never been easier to invest in gold. Buying online puts you a click away from the best prices for physical gold. And if history teaches us one thing about gold, it’s that the yellow metal only increases in value over time.

Although you might not have to wait long to see another hike in prices. Another recession is inevitable – it’s the nature of capitalism. And many experts are saying another, much worse crisis is just around the corner.

“Financial crises come round every seven years on average,” as the Guardian’s Larry Elliot puts it. “If history is any guide, the next crisis should be coming along some time soon”. And if it does, you can bet on another gold rush and soaring prices.

The bottom line

With gold prices taking a rare knock, 2014 presents an opportunity. The chance for a quick return on a precious metal we generally associate with long-term value. Whereas the threat of another financial crisis highlights the real beauty of this precious metal. When markets crash and currencies falter, gold goes from strength to strength.

If you’re unlucky enough to hit retirement during crisis, your pension or investments will suffer heavily. Gold on the other hand not only protects your investment, but thrives under hard times.