Despite gold prices hitting a slump recently, the market size of the gold mining industry is expected to rise to over $260 billion by 2028, according to MarketWatch. This comes up to a compound annual growth rate of 2.7 percent from 2022 to 2028. This is because confidence in gold remains high in spite of the rising levels of market uncertainty. As more and more people become financially literate, gold is becoming much more accessible to beginner investors, so there’s also an influx of new demand to keep it afloat. Even with a growing number of safe haven assets becoming available, gold is still many people’s go-to. Let’s explore why this is, as well as the different ways you can invest in gold.
Gold is the Number One Safe Haven Assets!
Often considered by veteran investors and experts as “TINA”, which stands for “there is no alternative,” gold is the definitive asset to have if you want an investment that consistently remains safe from such hazards as recession and inflation even for extended periods of time. And now that both are in full swing, the value of everything is rapidly diminishing, except for gold. The precious metal is one of the most accessible ways to keep the purchasing power of one’s money safe in times of crisis, and in recent times, it seems we’ve come upon the perfect storm to justify buying gold.
Where government bonds lose their value as a country’s debt compounds and their economies return slim yields, gold is an ever-appreciating asset. Other safe havens such as cryptocurrency and equity allocations are also becoming more and more unappealing because of reasons such as encroaching regulations and prohibitively high price of entry. Despite the growing number of options, gold remains unshaken as the top safe haven asset, with the way it not only retains value, but gains it as well.
2. Is Now Really the Right Time to Invest?
Just like any investment, there is a wrong time to invest in gold, such as during times of turmoil in the global mining industry, or logistical issues like lack of storage options. No such problems are particularly inhibitive right now. In fact, recent price trends suggest that Q3 is the best time to buy gold, as this is when demand is lowest. In 2022, gold fluctuated around $1,800 per ounce from January to June, but mellowed out from there to around $1,670 per ounce in September. Recent trends tend to closely follow historical ones, so you have a very reliable timetable of when to buy and when to sell. The rise and fall of prices is cyclic, so while it may look that gold is becoming a bear market at the moment, it always surges back up by around January.
That being said, it’s worth noting that gold has hit a two-year low in September, and expert projections aren’t too optimistic, even for the times of year when gold prices should rise. Still, it is exactly when sentiment is pessimistic and price of entry is at an all-time low that you should get in on an investment. Gold’s reputation basically ensures that it will eventually recoup its loss in value and grow further after that.
How the Form Gold Takes Affects Value?
One of the biggest reasons why opinions on gold are so mixed is because there are many different types of gold investments, and they all have variations when it comes to how they are valued. Pure gold bars are the simplest, with the most reasonable manufacturing premium and no attached extrinsic value factors. You simply need to take care of taxes and storage, and you have a fairly straightforward investment. Not so with other types. The most common form of physical gold beginners often purchase is jewelry, and this can be a tricky thing to turn a profit off of. With jewelry, you’re also paying for the handiwork of the craftsman, and the brand if it’s a designer piece. If you don’t know how to exploit these factors and just sell the jewelry purely on the value of gold, you may not break even.
There are also other forms of gold bullion, such as coins, baubles, smaller bars, and other pieces. Smaller pieces are more portable, more flexible, and are easier to store. Plus, some coins, like British gold coins from the Royal Mint are still considered currency, so they’re not subject to capital gains tax. Unfortunately, other forms of gold tend to be more difficult to insure, as the dealers of smaller items don’t usually offer insurance and storage packages. This means you’ll have to get them separately, and you won’t often find a good deal. You may also find yourself paying higher in premiums for such items overall, as they cost more to manufacture than plain gold bars. Certain other potentially confusing or easy to miss factors also affect the value of gold. This includes the exact definition of a gold karat, which can give one the wrong impression of the value of a piece of jewelry or other gold item. For a simpler and more streamlined experience, it’s generally much better to opt for solid gold bars.
Other Gold Investment Options!
If you still feel like gold investment is too risky or inaccessible for you, there are other options you can explore that can be comparatively viable to investing in gold. The most common one is purchasing gold futures, which lets the investor avoid the burden of storage while still enjoying all of the profit of selling gold at a bullish time. There’s also less financial commitment. Many offers have low down payments, with the remaining amount to follow once you’ve turned a profit. Plus, futures have more liquidity than buying solid gold. However, it does not make the investor exempt from engaging in the market gamble. In fact, it can be argued that not storing your own gold adds more pressure, as futures have an expiry date and the gold has to be traded before then. There’s no guarantee that you would turn a profit before the gold future expires.
Similar options to futures are unit and exchange traded funds. They offer much the same advantages, with unit funds being more managed and ETFs being less so, as well as some unique perks. However, the more managed a fund is, the more you have to pay in management fees. They also have their own disadvantages that can make them less appealing than futures.
Alternatively, you may want to consider buying shares from a gold mining company. This helps you avoid the burden of possessing physical gold while still benefiting from gold’s standing in the market. Just make sure that this particular company has access to mines that have high levels of measured gold reserves, or at least has a good reputation when it comes to prospecting. There’s also the Commodity Linked Structured Investment, where you let a bank or broker handle the assets for you for a set period, and choose the currency to convert the value of the gold into for your regular payout. However, this type of investment tends to operate in contrast to the traditional equity setup. Payouts can dry up when the gold market is booming.
Some Caveats to Gold Investment!
While gold is a highly reliable asset, you shouldn’t put all of your faith in it. People should only think of gold as a way to diversify their portfolio, as well as a haven for their funds when times are tough. Although the cyclic rise and fall of value guarantees some profit if you buy low and sell high, the difference is often not that great. If you decide to hold gold to turn a larger profit in the coming years, growth is steady, but glacial.
The movements of the US Federal Reserve are also of great importance. Throughout 2022, they have been steadily increasing interest rates to combat inflation, although to minimal effect. But the result of this is an ever-stronger dollar, and since gold is most often traded in USD, foreign investors are much more discouraged from purchasing it. And so, demand plummeted in March of 2022, and continues to drop to this day. There’s also the matter of a stronger dollar temporarily giving better returns on investments like government bonds. For now, this makes it a more lucrative alternative safe haven than gold. While historical price movements are a good guideline, it’s worth noting when there are certain major events currently transpiring that are drastically affecting the market. These include protracted conflicts, persistent inflation, supply chain malfunctions, and others.
Even though current market impacts indicate that it will take a long time for gold to regain value, the long-standing reliability of gold practically guarantees that it will do so eventually. If you have the patience to wait for its inevitable rebound, it can be the most viable way to retain your money’s value. While yields from investments such as government bonds tend not to remain high for long, the value of gold has remained consistent, and will remain so for years to come.