Why More People Will Sell Their Gold for Cash This Year
Oct 4th 2011 9:15AM
Updated Oct 4th 2011 11:51AM
More people have been selling their gold jewelry in the past year, many to cover expenses, others to just to take advantage of record high prices. Silver is part of the sales rush as well. Prices have dipped a bit from their recent peaks -- gold is down from an all-time high of $1,917 to $1,655 -- but old gold bracelets and silver dinner settings may be the best way to make money in the fourth quarter of 2011.
Sales of personal gold and silver should accelerate now for several reasons. While personal need may be the motivation for sellers, for investors, the temporarily lower precious metals prices may offer a chance to get in on the market at relatively reasonable entry point. The pressure on gold prices likely will be more up than down over the next quarter or longer, even with so many people in need of money adding their personal treasures to the supply. A demand-based rally may even encourage sales as those people cash in.
Here are six reasons gold will rise again:
1. Gold remains a safe haven investment. If the stock market continues its sell-off, gold prices are likely to rise back to record levels as people move out of the equities market.
2. Gold demand outside the U.S. is increasing, especially in the two most populous nations in the world: India and China. With 2.5 billion people between them, their markets for gold are tremendous and growing.
3. Central banks have increased gold buying, which may hit its highest level in two decades. According to the Financial Times, "Mexico, Russia, South Korea and Thailand have all made large purchases this year, in a move to reduce their exposure to the dollar."
4. A number of industries still require gold, among them the electronics, medical and auto industries.
5. The economy is deteriorating throughout the U.S., the EU and Japan. That means holdings in sovereign debt have become more risky. The best sign of this is the loss of America's AAA rating. That means one more asset class has lost some of its safety.
6. Gold is an asset that many very wealthy families use to create a financial and savings buffer. Such high net worth people will probably hold gold long-term because it's one form of "currency" that will always have value. As wealthy people hold gold reserves, supplies will remain tight.
People compelled by circumstance to sell whatever gold they have certainly could use stable-to-rising prices. Home prices continue a four-year slide, and one in five homeowners in America now has an underwater mortgage. That vast loss of equity has left many people without a means to cover the costs of critical expenses like education. To make matters more difficult, wages in the U.S. have been stagnant for a decade, and unemployment, as we all know, remains stubbornly high.
Selling gold may be the only chance many Americans have to put a little luster back into their household finances.