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Best Time To Invest In Gold11 min read

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Today, in this article, you’re basically going to learn everything you need to know about buying gold. If you’re looking to invest in gold or other precious metals, then this article is a must-read. You’ll learn when to invest, what to consider when it comes to external factors in buying, facts about holding physical gold, and more.

Physical gold is considered the earliest traded asset, existing long before other markets like bonds and stocks. Buying gold and gold trading provides a lot of opportunities for investors, but it’s not without its downfalls.

Keep learning and exploring why people invest in gold coins, gold stocks, and gold jewelry, how to invest in gold, and review whether or not buying gold is an excellent investment in 2022.

The Best Time To Invest In Gold

 

When Did Gold Investing Get Started? A History Lesson

Since the stock market started, gold has established the status of having a negative correlation to stocks and a positive association when compared to inflation. Nonetheless, the history of gold as a financial asset and store of value started long before that.

You see, gold coins were minted and utilized as currency as far back as 550 BC. Nonetheless, gold was considered a sign of wealth long before it was used as a currency. Treasures of gold have been found from as early as 4000 BC. Thus, the precious metal has been infamous for its relevance to wealth and power for many millennia.

Still, it wasn’t until the late 1800s that physical gold obtained its value in today’s society. Most countries adopted the gold standard, involving fixing the value of their currency to the gold price.

The gold standard declined and was readopted in different nations until it was finally substituted by freely floating fiat currencies in 1971.

The gold price remained stagnant until the 2008 financial crisis when the price of gold increased from around $15 to $30 a gram in the next years. That increase in the gold price was in response to the adoption of quantitative easing (QE) by central banks. Also, the justification of appreciation in the value of physical gold follows the general logic that QE products raise inflation, and gold prices increase alongside rising inflation.

What Impacts Gold Prices?

What Impacts the Price of Gold?

There are lots of things that can impact the price of gold today. These are pretty much the most popular things…

Worldwide Events

Prices of gold go up sharply when a sudden or unpredictable event happens, which boosts uncertainty over future political or economic prospects. That could be something as substantial as the outbreak of conflict or war but could also be something less significant and more short-term, like a referendum result or sudden election.

Events that are unexpected often lead to a knock-on effect on the financial markets that could have an impact on gold.

Investment Demand

Keep in mind that gold investing comes in different forms. One of the most typical gold investment vehicles is ETFs, that function like trusts. They are traded on the exchange like you’d trade stocks.

ETFs are not just represented by private entities, but mining firms can also own and trade them. Now, the demand for these varies too. ETFs have massive gold reserves, and the demand for gold from such investment vehicles could cause substantial gold price movements.

ETFs are relatively typical, particularly in America, and the market is considered to be still growing.

Currency Movements

Gold prices tend to fluctuate because of currency swings, especially the American dollar. It has an inverse relationship with gold and is the world’s reserve currency, and is potentially the most widely utilized denomination.

Once the value of the US dollar falls, the price of gold will rise as the rest of the world’s currencies gain value.

Inflation

The increasing cost of goods and services is known as inflation. Economists think that the value of fiat money is eroded because of this process. Meanwhile, inflation at controlled degrees means a healthy growing economy.

An inflationary economy means investors prefer to buy gold than cash because its stable. Therefore, both the demand for gold and its price increase during these scenarios.

Supply and Demand

Like any other good or service, the price of gold is subject to the laws of supply and demand. That means the higher the price, the lower the quantity demanded. Also, the higher the price, the higher the quantity supplied.

Equilibrium also identifies the market price. That’s certainly one of the most critical determinants of the price of gold since the demand and supply forces generate market shifts that impact gold market prices.

If the demand for gold goes up, gold prices will also increase. On the other hand, the price of gold will decline if it’s oversupplied.

Jewelry and Industrial Demand

Big countries such as China, the United States, and India require and buy gold in large amounts for jewelry production. Even if the changes are not significant, their cumulative desire for gold can influence price changes.

The price of gold is impacted by global jewelry demand. Thus, if jewelry demand increases, the price of gold will increase too. If the demand falls, the prices will fall too.

On top of that, remember that gold has some industrial applications, contributing to the global demand for gold. For instance, gadgets and electronics can have gold components on them. As a result, gold prices are influenced by global industrial demand as well.

Physical Gold

Investing and Holding Physical Gold – A Good Idea?

Investing in gold precisely could be an excellent idea right now. However, in our opinion, it is never better than betting in the stock market, which exists as a cousin to gold. Commodities are not cash-flow-producing assets, and you can purchase companies with gold miners for good earning yields.

That’s currently the Warren Buffet approach. Traditionally, he took positions in gold, taking economic uncertainty as a time to load up on more equities on sale and have risk tolerance. However, he eventually did it and acquired Barrick Gold.

We would recommend a similar strategy, except not investing in Barrick Gold, which will have that unwanted Buffet premium from followers bidding up his stocks. Purchasing companies with clear gold commodities can translate your outlook on gold into a proposition for cash-producing assets, where prospect risks are limited by owning shares in a business instead of a commodity where you need to depend completely on a speculative appreciation.

Why Invest in Gold?

There are many reasons why making a gold investment is such a good idea. Here are some of them:

Gold Stock Opportunities

The values of gold stocks are normally reflected by the price movements of the precious metal gold. Nonetheless, gold stocks could sustain their profitability even when the price of gold is slow.

Furthermore, most gold miners pay strong dividends, helping offer further incentives for investors to buy gold stocks instead of physical gold.

Portfolio Diversification

A balanced investment portfolio will often involve diversification assets such as gold because they are usually negatively connected to the stock market. You see, having a diverse investment portfolio helps to lessen risk and volatility for investors.

Safe Haven

Compared to currencies, gold isn’t directly affected by interest rate decisions and can’t be printed to control its supply and demand. Keep in mind that gold futures are a scarce asset that has sustained its value over time and has proven its worth to serve as an insurance policy during a financial crisis.

Because of that, gold today is considered a safe haven by many investors.

Hedge

Gold prices frequently appreciate together with rising inflations and a depreciating dollar. For that reason, global investors may look to buy gold as a hedging asset when they realize they’re losing money.

That follows the general understanding that gold maintains its value or even appreciates whenever the value of the dollar falls.

Wealth Preservation

Physical gold has been trusted by many investors for its wealth-preservation attributes. Consider the comparison between owning $50 worth of gold in 1980 and owning a $50 note.

Gold bullion has since increased in value, so the value of the gold proceeds the original $50 original investment. Nonetheless, the $50 note hasn’t increased in value because of inflation. It can’t buy as much as it could have in 1980.

What Are The Best Gold Investments?

Unlike other assets out there, gaining exposure to gold can be simple. Investors can choose the gold investment with other investments. It’s also less volatile than particular commodities, like futures contracts, oil spots, or agricultural products, that can be easily impacted by economic instability or seasonal events.

Gold Derivatives

Gold derivatives symbolize any product which derives its price based on the value of gold. That can refer to gold options and gold futures, which are suggested for advanced traders.

Derivative products can also involve leveraged trading accounts like CFD trading accounts or spread betting, where you can trade on the gold’s value through an online trading platform.

Gold ETFs

Owning gold comes with problems such as insurance, storage, and other expensive fees, and gold mining firms can be a speculative investment. It’s no surprise, thus, that gold ETFs have been demonstrated as a famous way to gain exposure to gold without the need to store it.

On top of that, exchange-traded funds provide exposure to the gold market as most ETFs monitor the movements of the commodity. On top of that, ETFs could be considered a less costly and more liquid investment than owning gold.

Gold Mining Companies

Another alternative is to buy gold mining shares, which are considered to be riskier than buying gold. That’s because you need to consider the success of the business separate from the price of gold.

Nevertheless, on top of that, mining companies are normally speculative investments. Thus, you have the opportunity to make or lose a lot of money. Also, you don’t have the security of physically holding gold if the gold stocks demonstrate to be unsuccessful.

Physical Gold and Gold Bullion

A famous and good investment option for most investors is gold bullion. You see, the gold mullion is a physical metal in a refined format. It’s ideal for trading and can appear as coins, gold bars, or ingots.

Investors can buy gold from precious metals dealers, brokerage on the internet, banks, or in person. Apart from gold bullion, investors can consider buying gold jewelry or any other physical gold products. But remember that there’s a price market on gold jewelry because of the labor involved and the product’s retail pricing.

Further, physical gold can’t be easily stored as other financial assets. It takes up a huge amount of space and comes with other risks of loss or theft. When you buy gold or store gold, you must make sure you have insurance covering it in case of loss or theft.

The Outlook for Buying Gold in 2023

Low-interest rates and financial uncertainty following the coronavirus market crash caused the gold price to enter a bull market, rising from simply over $36 per gram to more than $45 last year. If financial uncertainty continues, pushed by the weakening in economic growth following the pandemic, you could notice gold hit highs in 2022 and 2023.

So, does it mean that it’s a good time to buy gold? Gold can be an excellent investment asset to have as part of your balanced portfolio. Gold boats some of the highest liquidity in the commodity markets and has increased in value over time.

If you’re planning to invest $1,000 into gold three decades ago, it has since increased by more than 500%. That means your original investment could have been worth more than $5,000.

Nonetheless, if you know anything about the financial markets, it is that previous performance isn’t an indicator of future performance—even though an asset that has showcased strong performance over the years could be preferred to one that has not done so well.

Final Thoughts

There are different ways to invest in gold. You only need that optimal timing. However, there’s no “best” method, as the tool you must pick depends on your personal circumstances and investment goals.

Also, gold is a good investment in the right situations. The key to successful investment is knowing in what scenarios to pick an asset. Gold can be a great investment, but it can massively depend on your personal situation and the assets’ suitability to your portfolio.

Like other different assets, investing in and trading on gold-related stocks comes with the risks of losing capital. You must only invest in or trade gold or mutual funds if you’re aware of the risks associated with doing so.

I hope you find this guide informative and helpful. We wish you the best of luck on your journey.

Best Gold Companies of Today

If you’re looking for a complete list of the best gold companies that I suggest investing in, then please check out the links below. If it’s listed below, it’s a great company to consider investing in!


About 

Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.