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When someone invests in gold, they hope eventually to see a profit. Like other investments, though, the value of precious metals can fluctuate. Sudden price drops and unexpected events can lead to a gold sell-off. This leaves some folks wondering if they made the wrong investment.
It’s not uncommon for people to liquidate their gold during a sell-off. After all, it can feel disheartening to watch your investment quickly lose value. Even during the coronavirus pandemic — when precious metal demand skyrocketed — there were periods of sell-offs.
Of course, no gold sell-off has lasted forever. In many cases, investors who liquidated their assets ended up regretting their decision. That’s why it’s so important to understand this investment reality. With a bit of knowledge, you can make smarter investing decisions.
What Is a Gold Sell-off?
There’s nothing complex about the definition of a sell-off. When it happens in the world of gold, it means large numbers of people are selling their bullion. As this occurs, the price of the precious metal can drop precipitously. This in turn can cause the price of gold to go down even further.
This phenomenon isn’t confined to just precious metals. For instance, we saw the price of GameStop stock plummet after investors started selling it around $480 a share. This is the same thing that happens with a gold sell-off. People get scared of losing their investment, so they sell.
While massive drops in gold’s value due to sell-offs are infrequent, they have occurred multiple times in recent decades. The following periods saw some of the biggest sell-offs and price drops in history:
- January 1980 – April 1980: $760 to $509 an ounce
- October 1980 – June 1982: $678 to $320 an ounce
- January 1983 – January 1985: $498 to $302 an ounce
- March 2008 – October 2008: $970 to $720 an ounce
- September 2012 – December 2015: $1,776 to $1,061 an ounce
While some of these periods seem long, they’re actually relatively short. For instance, the three-year decrease to $1,061 that ended in December 2015 may have seemed like an eternity. When the precious metal climbed to over $2,000 in 2021, though, it was a distant memory.
As we’ll discuss later in this guide, gold sell-offs are a natural occurrence in precious metal investing. Of course, buying an American Gold Eagle and then seeing its value drop $50 in a week is a jarring experience. Everyone who invests in precious metals eventually feels this pain.
Once you understand the underlying factors for this phenomenon, however, it’s easier to keep your focus on profit even as everyone else panics over loss.
What Causes a Gold Sell-off?
The simplest explanation of what causes a sell-off is straightforward: people sell their gold. This can lead to a price drop that exacerbates the issue. Of course, the trend doesn’t just pop up out of nowhere. There has to be a precipitating event. Unfortunately, there are several possibilities.
Each of the following events has caused a gold sell-off in recent memory. It’s important to remember that none of these events have ever resulted in permanent price drops. Despite the many sell-offs throughout history, the precious metal continues its historic trend upward.
- The value of the dollar rising
- Demand for gold dropping among the public
- Interest rate hikes from the Federal Reserve (there’s some debate over this)
- Improving economic conditions (e.g., lowered unemployment, higher Nasdaq)
- Decreases in jewelry sales
- Lack of interest from ETF management
Each of these occurrences creates a situation where the price of gold may drop. Even if one of these events didn’t cause such a result, a perceived impending drop could cause the public to react and lead to a gold sell-off.
It’s an unfortunate fact, but the price of gold can drop based solely on the fear that the price of gold might drop. This certainly creates a scary situation, but it’s not one you should panic over. There are many things to consider before jumping on the sell-off bandwagon.
“Should I Sell My Gold?”
Regardless of what causes a gold sell-off, the result is the same. Prices drop and people get scared. When this happens, should you move to liquidate your bullion? Since we all have different goals, no one can answer this for you. Still, there are a few things you should know.
The most important issue to recognize is that price drops are not permanent. Like any investment, the value of gold will fluctuate over time. Just consider what research from Investopedia found:
“Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.”
There are plenty of reasons for a person to sell their gold. Anything from a sudden financial need to a desire for profit can trigger such a move. If you’re considering selling due to fear from a gold sell-off, though, it’s important to take a deep breath and think of your options.
While temporary fluctuations may feel scary, the operative word in that term is temporary. If you understand this when making your investment decisions, making the right move becomes much easier.
Buy from Reputable Companies
The most important thing you can do when buying precious metals is to work directly with a reputable company. While you may find seemingly great deals on eBay, you might also end up purchasing a counterfeit coin. Additionally, most gold sells for above spot value on the site, anyway.
To ensure you’re getting authentic bullion, it’s essential to go through a reputable company. Also, shop around! You can find great deals. For instance, Silver Gold Bull offers a Best Price Guarantee. This means you can pay the lowest price possible while getting stellar service.
Always Know What You’re Buying
No matter where you buy precious metals, it’s vital that you know what you’re getting. Failing in this endeavor can put you at risk during a gold sell-off. And while shopping with reputable companies may seem like enough, many people still make mistakes when buying.
One of the biggest issues relates to the similarity between coins. For instance, you have an enormous variety to choose from when buying Chinese Gold Pandas. If you mistakenly buy a different size than you intended, you could end up paying more per ounce on your order.
Consider Buying During Gold Sell-offs
It’s important that you make financial decisions based on your investment goals. When a sell-off results in the price of gold dropping, though, many people get excited to “buy the dip.” This means they purchase bullion while the price is low.
For instance, imagine you “bought the dip” when gold had its massive drop to $1,474 in March 2020. By August of that year, each ounce you purchased would be worth $2,067. That means if you had put $5,000 into gold in March, your investment would’ve been worth more than $7,000 in August.
These sell-offs may be scary, but many investors see them as an opportunity for significant profit.
How to Know if a Gold Sell-off Is Coming
Predicting a sell-off of gold isn’t easy. Like any other investment decision, it’s speculative. Your best bet of predicting such a sell-off is to watch out for the events we discussed in our What Causes a Gold Sell-off section.
The greatest advice anyone can provide, though, is simply to stay up to date on bullion news. You can’t just look at the current price of gold — or even its recent performance — and recognize whether a sell-off or price drop is coming.
By remaining informed, you’ll give yourself the best chance of making smart investment decisions. Before you react to a potential sell-off, however, ask yourself if it’s the right move. If you planned on investing in gold over the long term, doing nothing might be the best move of all.
Invest in Gold the Smart Way!
It’s absolutely natural to get “spooked” when the price of an investment drops. Over a two-day period in 2013, the price of gold lost 13% of its value. Can you imagine seeing a 1-ounce coin drop to $1,361 a mere two days after you bought it at $1,561?
That’s scary. When you look at the long-term trend of the precious metal, though, it becomes apparent that a gold sell-off isn’t the end of the world. It’s merely a natural financial occurrence linked to external economic factors. Over time, the direction of gold’s value always goes up.
At Silver Gold Bull, we strive to have the most informed clients in the world. Offering an understanding of the dynamics of a gold sell-off is an important step in that endeavor. This will allow you to see a sell-off as what it truly is: a temporary fluctuation in a valuable metal.
Visit our Gold Bullion Products page to start building for your future today.
