Gold prices are on the way down after reaching their peak in late 2011.
Prices of gold began to rise at the start of the recession as investors found it an alternative to stocks and real estate.
Walt Breitinger, Times business columnist and commodity futures broker in Valparaiso, said as the recession has seemed to come to an end, people have been liquidating gold and are instead looking at more conventional investments such as stocks and real estate.
“The reason gold went up was fear of inflation and looking at gold as an alternative to stocks and real estate,” he said. “They were the reasons it went up and peaked up toward the end of 2011. Those fears subsided as we saw better employment, so people stopped buying gold and started to sell it off and look back at the stock market.”
Gold prices were up to a record, over $1,900 per ounce, in fall 2011 and since then have varied widely but mostly have trended lower. Breitinger said traders, analysts and pundits have identified it as being in a downward trend.
Earlier this week, gold was trading around $1,250 per ounce on the New York Mercantile Exchange.
Another sign of a downward trend came when gold hit its peak, as Breitinger referred to an old saying that “high prices will cause low prices.”
The high prices of gold created more production as people scrambled to get into or back into the gold producing business.
On the flip side it’s hard for those mines to close in response to lower prices.
“They continue to mine and produce gold even though it took a plunge from $1,900 an ounce to $1,500 an ounce all in a matter of months,” Breitinger said. “So we saw the price dropping with record-high production. That high production has continued all through 2012 and 2013. Over 3,000 tons of gold were produced in year of 2013, making it a record year of gold production."
It was another reason that pushed the price down – less demand, which meant people switching to other investments, and more supply.
The cost of gold production also dropped during 2012 and 2013, Breitinger said. There was a surplus of labor and the price of fuel declined, so gold miners were able to get gold out of ground more cheaply.
“Production increased but costs decreased, so they were mining more and more of it when people didn’t want it,” Breitinger said.
Breitinger said there are several reasons why gold prices could rise again including military or geopolitical conflicts in places like Syria or Iran. The entire Mideast could reignite as problem area and threaten supply of energy to rest of the world. If price of crude oil explodes upward – that can cause gold to go up.
“I don’t think it will but could,” Breitinger said.
Another huge potential problem could be brewing between Japan and China and their dispute over a set of islands.
“If they lock horns that could cause people to buy gold out of fear,” Breitinger said. “They fear other problems will occur then they buy gold and sell stocks and bonds and mutual funds and real estate.”
Labor unrest in Africa could also be an issue. Protests, riots or strikes by gold miners could create a threat to gold production that would make the prices go up.
At The eState, in Portage, owner David Burhans said even though the price of gold is going down there are many more people wanting to invest in it.
“Sixty percent of my customers every day come in here looking for gold and silver bullions (coins),” he said. “Even though prices have dropped, less of it is available for sale."
Burhans said there are less physical ounces of gold and silver for sale then compared to buying it through the stock exchange, where you get a piece of paper saying “you own X amount of gold.”
“Most people want the physical – they actually want the gold, and that’s what’s becoming scarcer,” he said.
Burhans said for him it’s all percentages.
“It doesn’t matter if it drops down to $10 an ounce or goes up to $2,000 an ounce. We work on quantity and percentages. If I’m going to make $5 on something I’m going to make $5 whether it’s worth $5 more or less.”