As a direct reaction to Russia’s invasion of Ukraine at the end of February, the price of gold on the market surpassed $2,000 an ounce at the start of March for the very first time since August of last year. This was the first time this milestone had been reached since August of 2020. Investors who were looking for a safe refuge for their money were drawn to the precious metal because geopolitical unpredictability heightened its appeal.
Since then, gold prices have fallen, and they have settled to 2336.80 per ounce. This is due to the fact that central banks have begun aggressively hiking interest rates, which has increased returns from the interest-bearing holdings as alternative solutions to gold and strengthened the value of the USD.
Given the competing forces affecting its price in 2022, would it make sense to invest in gold?
This article explores the many avenues available for investing in gold, the primary forces that move the market, and the predictions of a few market experts on the trajectory of gold prices in the future.
Gold falls after seeing the greatest gain since its top in 2020
The price of gold did not meet the forecasts of market experts for most of 2021. This was because investors were more optimistic about the improvement of the economy from the Covid-19 outbreak than they were worried about excessive inflation.
As further interest rate increases were forecast to be implemented by major central banks, such as the US Federal Reserve, European Central Bank, and Bank of England (BoE), the gold market came under increasing amounts of pressure.
What factors have an impact on the price of gold?
When there is ambiguity or pessimism in other parts of the market (such as stocks and bonds, or even the economy in general), the price of gold tends to climb. On the other hand, the price of gold tends to decline when growth is robust in those other segments of the market. The majority of gold investors keep this asset in their portfolio as a kind of hedging against potential losses in other markets. This correlation is by no means a given in any way, but it is generally the case.
Other factors that may cause an increase in the price of gold include:
- Demand from consumers – is it being purchased more often for uses such as jewelry?
- Gold prices typically have an inverse relationship with interest rates, thus when rates are low, gold prices tend to go down.
- Weakening the US dollar
- a low supply, which causes prices to rise even if more and more gold is recycled.
- Instability in geopolitical relations
- Natural occurrences, such as prosperous monsoon seasons, have the potential to drive up the price of gold since the economies of the nations most directly impacted will likely increase their gold holdings in response.
Naturally, the opposite of any of the aforementioned factors will have the effect of bringing down gold prices.
Is it a good idea for me to invest in gold?
If you are fresh to the gold market, it is doubtful that this form of investing would be the best plan for you, since it will not allow your money to increase as quickly as you would want. You will not get any revenue from rent or dividends, in contrast to other forms of assets such as real estate or stocks and shares. And even though the risk level of valuable metals is modest, the price volatility of stocks means that you run the danger of incurring losses if you purchase or sell just at an incorrect moment.
However, precious metals have a propensity to keep their worth for a longer period. As a result of this, individuals often include them in their investment portfolios to diversify their holdings and act as a buffer against both short-term economic downturns and political instability.
What is the expected gold price in the future?
Is it a smart idea to invest in gold at this time? Investors’ expectations for gold’s price in 2022 have shifted according to changes in the macroeconomic and geopolitical landscape.
Remember that the financial markets are still very unpredictable, making it impossible to precisely anticipate what the price of gold will be in a day, and much more difficult to make long-term projections, when contemplating whether now is a good time to purchase gold? As a result, analysts may and do make mistakes.
How do you invest in gold?
Investing in gold may be done in a variety of ways, depending on your approach to your portfolio.
Gold bullion
You may possess the physical metal if you invest in hedging against inflation and the volatile stock market. This is one of the benefits of using gold as a hedge. Because it is so easy to trade and because it is independent of the financial system, bullion is the best possible hedge.
You have the option of buying gold jewelry and selling gold bullion in form of gold coins, bars, and ingots. On the other hand, having actual bullion means you are responsible for ensuring that it is kept in a safe location, which will require payment for storage as well as insurance on the metal.
Gold stocks
You may engage in direct trading on gold prices, or you can obtain access to the market by investing in the shares of gold mining firms. Either way, you can profit from price fluctuations in the gold market. You can direct your stock holdings toward certain gold firms, as well as geographical areas or market segments if you so want.
Holding business stocks gives you the ability to keep a vacant position for years or even decades, which may be beneficial if you are interested in investing in gold as just a long-term portfolio hedge.
Futures in gold
You may get a taste of the commodities markets by owning equities, but if you want to trade on gold price movements, futures markets are the best place to be. Exchange-traded futures contracts for gold enable investors to bet on short-term price movements of the precious metal.
Conclusion
In a high inflation climate, gold may be a safe refuge for investors. Gold’s price is erratic, yet it’s gained value over the previous 30 years, like stocks. Depending on your risk tolerance, you may invest in actual gold, mining shares, or gold-based funds & ETFs. Gold investments should be diversified. You may not receive your money back if your investment goes down. If you’re unclear about your best decision, seek financial guidance. Buy gold for the best price by visiting our online shop.