The value of gold is highly volatile and can easily collapse
Gold is highly volatile and trades like a long-dated zero coupon bond, so it's value has very big swings up and down based on real rates. Gold is a very risky investment with a high standard of deviation.
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Volatility is when a stock hits extremely high or extremely low prices, and these fluctuations are not entirely predictable. It does not have a stable price and oftentimes, it's hard to predict beforehand how it's going to behave. Gold is considered to be highly volatile because its value tends to change very quickly and drastically. There is a high level of risk associated with such items and many tend to stay away from them. A common statistical tool used to assess the volatility of an item is to look at its standard deviation: A measurement of the degree to which the value deviates from the mean. A high standard deviation means that there are large fluctuations with prices hitting record highs and lows. A low standard deviation value shows that the value of the investment is more or less the same across a large period of time. The standard deviation of gold, which was measured over a five year period till March 31, 2018, was around 16. The annualized return was around 4%. To put this in perspective, the standard deviation of gold has almost always been higher than that of S&P 500. Furthermore, it does not follow the stock market trends. This makes it even harder to predict the value of gold in the future. All of these show why gold is considered such a tricky and risky investment. While its highs can be enormous, it's much more likely that someone does not profit with such a volatile investment.
The highly volatile nature of gold is exactly what makes it so appealing to many investors. Although it is quite risky, it gives traders the chance to buy gold when it priced very low and sell it at times when it is overpriced. Many traders have made a small fortune by following this approach. Furthermore, volatility can be predicted through numerous mathematical equations and computer software programs. These hypothetical predictions might not always be accurate but they do give investors a firm idea of the future projections of their investment. By using these tools, it is quite possible to profit immensely from investing in gold.