What do we do when the gold price drops?
Those who just get started in the gold savings journey might get panicked when they see the gold prices drop. However, those with the proper knowledge understand that a gold price drop is nothing but an opportunity to increase savings. In other words, this is the time to bring down the average purchase price.
Gold is a physical asset
One thing to note is that gold is also a physical asset, just like our real estate, property, etc. If the price of such assets drops, are we losing money? The physical assets are still there, providing us shade and passive income (if we rent out the property). Similarly, when we own a 100g gold bar, we are not losing any grams of gold when the price drops.
However, the same feature is not valid with paper assets (such as the stock market). When the share price falls, our total portfolio tanks, and usually, it will take some time to recover (provided that we have selected the right stocks to begin with). There is nothing we can do when numbers on that screen drop.
An asset with a low side of risk
Gold would always be in our hands even when the value drops. There is still a chance to leverage it on Ar-Rahnu centre and acquire a quick loan (if needed) and use the capital for other uses elsewhere while waiting for the gold price to appreciate.
When we think about it, gold is deemed a low-risk asset compared to other assets. The probability for the gold price to crash to zero is highly unlikely. The value of gold is 100% based on its weight and purity.
Once we understand this fact, we will be smiling the next time we encounter a drop in the gold price. No more worries because we would know exactly how to respond (buy more gold at a lower cost to average our purchase price).
What do we do when the gold price crashes?
Out of many things we can consider, one way is to continue buying gold provided there is sufficient funds. As mentioned before, a drop in gold price is an opportunity to bring down our average buying price potentially. For instance, let’s say we have purchased gold at RM190 per gram, and now the gold price has dropped to RM170 per gram. When we buy gold at this rate, our average purchase price has become RM180 per gram. Sooner or later, when the gold price goes back to RM190 per gram, we would be in the profit zone.
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Your buddy on gold investing,
Naresh G