Gold has fallen from its peak a few years ago down to $1,100 an ounce. Some analysts even think it could drop down to $800 an ounce.
So what’s going on? It’s all about basic market fundamentals and the nature of bubble markets.
The trouble with bubbles
The problem with bubbles is we get too caught up in the frenzy of the moment. It’s so hard to know in the shorter term which way things are headed. Many people who became true gold bugs believed that gold was the one safe haven that would go as high as the sky. And with modern trading methods, you have so many opportunities to make a quick decision when you’re watching the price of commodities fluctuate.
In the same way, I think about when stocks were in the toilet a couple of years ago and people rushed to sell like they were getting off a sinking ship. If they had just hung in there, they would have made back all their money…but they missed the run-up.
Human nature makes it hard for us to make long-term rational decisions!
Read more: My investing guide
Now, I am the dullest guy you’ll ever know. I have no idea about movies in the last 10 years, no idea about hot music acts and I’m basically clueless on all popular culture. But one thing I have a sense about is the long term, as in investing with the goal being down the road.
If you diversify your portfolio far and wide (small companies, mid-sized companies, large companies and international) through index funds and ETFs and you dollar cost average (contribute equal amounts each pay period), you’ll come out ahead in the long run.
Read more: How to add gold to your porfolio
Don’t try to figure out the flavor of the month; leave that to Baskin Robbins! Too often when you buy the latest, greatest, hottest commodity, the big run-up is already over and you’re just in it for the decline.
If you do want to buy gold, buy it in dribs and drabs and make it no more than 5% or 10% of your overall portfolio; don’t take everything you’ve got and pour it into gold or other precious metals.
Read more: How to sell your unwanted gold jewelry