by Craig Hemke, Sprott Money:
2024 was a tremendous year for gold as the price rose by over 25%. More gains look to be coming in 2025, which leads many to ask if the price is too high for new purchases.
With any investment, buying low and selling high is the key to success. However, timing your purchases to coincide with price lows is always a difficult proposition. This is especially true with precious metals, where it always seems that your best opportunity to buy is at a time when investors are bearish and it seems that even lower prices are coming.
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Why Buy Gold When Prices Are High?
At TF Metals Report, we refer to this as one of our most tried and true adages:
- “Always be prepared to buy when things look the worst but, if trading, you should always be prepared to sell some when things look the rosiest.”
It’s a contrarian mindset, but it has served us well over the years. Think about just the past few months. Things looked quite rosy in late October as the gold price was making new all-time highs day after day after day. As it turns out, that was the time to sell, not buy, as price fell almost 10% in the weeks that followed.
Alternatively, the situation looked dark and scary by mid-November. That 10% selloff scared off a lot of investors and demand for gold fell…just before price began to rally again to its current levels.
What Is the Long-Term Value of Gold?
With this in mind, what’s a precious metals stacker to do as 2025 begins and the spot price is once again near $2700/ounce? Well, first you need to look ahead and try to discern which way prices will be headed in the new year. Personally, I expect another solid year for gold and silver with another round of new all-time highs for gold pending soon and a $3000+ price by later this year. I tried to lay out all my reasons for this optimism in my annual “macrocast” last week. If you missed it, here’s a link:
Should You Buy Gold Today?
There will certainly be periods where sentiment and price wash out, providing you with opportunities to “buy the dip” and save a few bucks in the process. But there will also be periods where optimism and enthusiasm will abound. When this happens, history has shown that you might postpone further purchases until you get some sort of price pullback. Again, “always be prepared to sell some when things look rosiest.”
But let’s get back to the question posed in the title of this post. Is the gold price too high? This is a long-term question for stackers, not necessarily a short-term question for traders. Is the gold price too high? If you buy today or this week, will you regret the purchase over time?
Gold vs. the Dollar: A Long-Term Perspective
Well, first of all, we should start with this X post and chart from Michael Oliver. Notice that the gold price has outperformed the S&P 500 Total Return Index since the start of this century. That’s 25 years of investment performance, so this can’t be brushed aside as just some sort of short-term trend.
