Reed Cagle Explains What Drives the Price of Gold

Feb 28, 2022 1:00 PM ET

Price of Gold Reflects Investor Confidence in the Economy, Cagle Says 

The price of gold has proven remarkably stable, investor Charles Reed Cagle points out. Sure, the spot price of an ounce of gold is down a little over 4 percent at the beginning of 2022 from where it was at the beginning of 2021. But over the last five years, the value of an ounce of gold has risen 56.95 percent. And since 2001, gold has appreciated over 547 percent.

Reed Cagle believes that gold prices will be staying strong despite any upticks in the stock markets and even with strong recovery of the economy. The reason gold is an important part of any portfolio is that it preserves value, and the reason it preserves value is that investors see gold as a reliably safe choice.

 

Reed Cagle Explains What Drives the Price of Gold

Gold Prices Reflect the Economy, Reed Cagle Says

When the economy is flailing, Reed Cagle says, investors have difficulty assessing risk. Investors become insecure with high-risk and even moderate-risk investments. They turn to the tried and true, especially gold.

Knowledgeable investors investing in gold can be a sign that the economy is in decline, as it was for several months in 2020. But savvy investors turning to gold can simply be a sign that quantitatively-oriented investors aren’t getting enough data to make rational investment decisions. Leading indicators like the price of oil may tell investors that the economy is very much on the mend, but it’s only human to be investment-shy after experiences like those many investors had in 2020.

And, of course, when the lead story in every financial news outlet is something about inflation, investors become keenly interested in gold.

As Talk Turns to Inflation, Investors Turn to Gold

After years of staying dormant, inflation reared back to life in 2021. Americans emerged from COVID-19 induced isolation, suppl chains weren’t ready for demand, and prices surged, especially of oil.

Inflation puts a spotlight on gold. There is a natural impulse to buy gold to make a quick profit. But as recent gold prices show, too many people can get that idea at the same time.

“For investors looking to hedge their portfolios, precious metals and other commodities in general and gold in particular can be a good play,” Reed Cagle says.  investors who are looking for a hedge in their portfolio, commodities in general and gold specifically can be a good play. However, it is important to understand that the reason to include gold in your portfolio is to make sure you achieve a long-term, positive rate of return.”

As a short-term bet, Reed Cagle advises, gold is always risky. But as a long-term component of any balanced portfolio, gold more than holds its own.

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