Has gold lost its glitter?

If you’ve been following the finance columns of late, you may have noticed that the value of gold has hit a two-year low. Last week saw the biggest plunge in the price of gold for more than 30 years.

The price is now more than 25% lower than its peak of $1,921 in September 2011 and has dropped from $1,580 an ounce to $1,380, dragging other metals down too.

But what is behind this sudden drop and why is it relevant to you?

During the recent global recessions, investors piled into gold, seeking refuge from the banking crises and economic downturn that were ravaging stocks and shares. Investors bought the metal to protect themselves against inflation and because of its widely perceived position as a financial ‘safe haven’. Low interest rates on savings accounts, high inflation and lack of faith in the stock markets all helped increase its appeal to investors and this was reflected in its increasing price.

So what's making gold dull?

Market experts are pointing towards various reasons behind the falling price of gold. Speculation that Cyprus may sell its excess gold reserves to raise €400 million (£340 million) to help fund its debts was certainly a contributor, alongside news of the US economic situation and a slowdown in Chinese growth.

Is there a light at the end of the tunnel for investors?

If you have invested in gold there is no need to panic. Unless there is an emergency, it is not advisable to sell gold at this point. Although a further drop in prices cannot be ruled out, experts still believe that gold will deliver good returns in the long term.

This is a good time for traditional buyers looking to purchase gifts or wedding rings. However, for those looking to seriously invest, it is advisable to err on the side of caution and watch for any further changes in the price of gold.

Last week’s drop illustrates the importance of spreading the risk of your portfolio, by diversifying across a mixture of asset classes, industry sectors and areas of the world. Even suggested ‘safe havens’ have risks.  Instead of following the herd or making drastic decisions, it is important that you review your investments regularly, in order to make the best decision for your future.

 

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