Should I Buy Gold Now
Although inflation soared in 2022, gold prices actually declined for most of the year, driven in part by the strength of the U.S. dollar against other currencies. However, with inflation remaining at persistently high levels alongside concerns about a potential recession, gold prices ticked higher in the final months of 2022 and early in 2023.
should i buy gold now
There are many reasons to consider adding gold holdings to your investment portfolio. The precious metal has a history of maintaining its value, making gold a useful hedge against inflation. Gold prices tend to increase when the U.S. dollar is underperforming or during times of economic and political uncertainty. Finally, gold can provide an important level of diversification to your portfolio, as gold prices have historically shown a negative correlation with other asset classes.
There are many vehicles for adding investment exposure to gold. It is possible to own the physical metal in forms such as bullion, coins, or jewelry, although storing and insuring physical gold assets can be costly. Other possibilities include investing in a gold exchange-traded fund (ETF) or buying shares in mining companies that engage in the extraction and production of the precious metal.
Gold has underperformed the U.S. stock market over the long term. However, the yellow stuff has a reputation for being a safe-haven asset amid times of uncertainty. And many have even referred to gold as an inflation hedge.
For part of 2020 to 2022, the inflation hedge story rang true as gold passed $2,000 per ounce for the first time in history in 2020 and then reached an all-time high of $2,074.60 per ounce in March 2022. But in the last four months, gold suffered an 18% drawdown from that high -- meaning that gold is nearly in a bear market during a time when it should be holding its value. In this vein, gold seems to be failing as an inflation hedge. And in fact, there is data to suggest that gold's reputation as an inflation hedge has been largely exaggerated even by historical measures.
A slowdown in economic growth and rising geopolitical issues tend to help the price of gold. However, a strong U.S. dollar hurts the price of gold, because a strong U.S. dollar relative to other currencies makes it more expensive for foreign buyers to purchase U.S. dollar-denominated gold.
The U.S. Dollar Index, which tracks the value of the dollar relative to the value of the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona, is at a 20-year high. Part of the ascent is due to the U.S. Federal Reserve rapidly raising interest rates to combat inflation. High interest rates encourage foreign investment in U.S. Treasuries. High interest rates also mean that holding gold has an opportunity cost, given it doesn't pay interest like a U.S. certificate of deposit.
In past U.S. recessions, the Federal Reserve would lower interest rates and hopefully weaken the U.S. dollar in an effort to encourage domestic consumption and make it less expensive to export U.S. goods. However, because the Federal Reserve's priority No. 1 is lowering inflation, not preventing a recession, the dollar could remain strong for the foreseeable future. A strong dollar is arguably the biggest headwind holding gold back right now.
Over the last few years, there have been several polls that suggest millennials and Gen Z are more likely to view cryptocurrency as a preferred investment than gold. Granted, many of those polls were taken before the recent crypto crash. However, millennials are now the most active generation in the economy now that many Baby Boomers have retired. Less demand for gold as an investment in risk-averse or retirement portfolios could dampen demand.
Many investors may feel that beaten-down stocks are a better buy now than gold. They are probably right. Gold may be down 18% from its high, but there are plenty of top stocks that are down well over 50%. Even several well-known Dow Jones Industrial Average components, such as Nike, Home Depot, and Salesforce are all down between 30% and 53% from their all-time highs.
Warren Buffett has long said that gold is a bad investment because its growth prospects are limited to supply and demand, rather than a company that can grow with innovation and good management. By keeping cash on the sidelines or buying gold now, an investor essentially says investing in gold is a better use of capital than a different asset.
Despite all the cons discussed, now could be the perfect time to add a bit of gold to a diversified portfolio, especially if that portfolio is in need of lower-risk assets. Aside from the drawdown in price, gold could be the ideal investment for a prolonged recession, ongoing economic weakness, and could even rebound if the U.S. dollar begins to weaken.
The Federal Reserve has made it clear that it is raising interest rates to combat inflation but that the raises would likely stop once inflation is in check. If unemployment rises, the job market weakens, and the U.S. falls into a recession, inflation would likely ease due to lower consumer spending. That's a terrible setup for most assets, but a decent one for gold.
While it may be tempting to buy shares in a gold mining stock that is down even more from its high, the simplest and safest way to buy gold is to go with an exchange-traded fund (ETF) such as the SPDR Gold Shares (GLD -0.57%) ETF or the iShares Gold Trust (IAU -0.56%). Both of these ETFs are at 52-week lows and are meant to track the price of gold by holding insured physical gold in a trust. The SPDR Gold Shares ETF has an expense ratio of just 0.4%, and the iShares Gold Trust offers an even lower 0.25% expense ratio -- which is a much better and more liquid alternative than buying physical gold bars and paying a hefty premium above spot.
Gold is often considered a good investment for diversification, as it may be less correlated with other assets such as stocks or bonds. This means that the price of gold may be less affected by movements in other asset classes, which can help to reduce overall portfolio risk.
With inflation and geopolitical tensions on the minds of every investor and their mother, everyone is looking for ways to de-risk their portfolios. While some tech-savvy millennials and Gen Z investors might look at cryptocurrencies and NFTs as the way forward, many others might think about investing in gold.
So is it a good idea to put some of your money in the precious metal? What are the reasons why you should invest in gold? And how exactly can you do it? Those questions and more will be addressed in the sections below.
In the grand universe of investment, gold belongs under the umbrella of commodities, which are known for their sensitivity to price swings. But gold is less volatile than certain other commodities, like oil or agricultural products that can be impacted by seasonal events or economic weakness.
As of March 2, 2022, the price of gold was US$1,922.30 per ounce, according to macrotrends.net. Adjusted for inflation, that same ounce of gold would have been worth around $2045 at the end of 2021, and US$1,750 in March 2020, when the COVID-19 pandemic began. In March 2012, the inflation-adjusted price of gold was approximately $2040.
Twenty years ago in March 2002, gold was around $460 an ounce; in January 1990, it was worth roughly $900 an ounce. Gold hit its peak in January 1980, when it was worth around $2,450 an ounce. Ten years before that, in 1970, it was at its lowest at around $250 an ounce.
Gold exchange-traded funds (ETFs) are made up of gold-backed assets instead of gold itself. ETFs pool other financial instruments to offer investors exposure to a particular index, sector, commodity or asset class. Their structure is similar to mutual funds except that they can be traded as stocks. With a gold ETF, investors gain exposure to gold without having to buy the physical commodity, which can be quite expensive.
Given that gold has remained valuable for centuries it can stake its claim as a potentially good long-term investment. It has a proven track record of being used as a vehicle to pass wealth through generations. Furthermore, gold holds its value during both inflationary and deflationary times which further adds to its appeal as a long-term investment.
Research conducted by Goldsilver.com shows the probability of profiting from an investment in gold increases if the commodity is bought at the beginning of January, late March to early April, and mid-June to early July. Since 1975, March was the worst month for gold so buying it then would increase the odds of profitability. Furthermore, the research showed that an investor interested in buying gold should do so by the end of the second quarter of a given year.2
JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.
Russia receives less attention in the precious metals arena but that is because it is a smaller economic power than China. Nonetheless, the Russian central bank has recently announced that is purchased 30 tons of gold in March with IMF statistics currently placing Russia as the 5th largest gold reserve. But, do we know its true reserves? Many claim no.
Gold is one of the earliest traded assets, existing long before other markets like stocks and bonds. Gold trading offers lots of opportunities for investors, but it is not without its downfalls. Join us while we cover why people invest in gold, how to invest in gold and review whether or not gold is a good investment in 2023.
Gold coins were minted and used as currency as far back as 550BC, but gold was known as a sign of wealth long before its use as a currency. Treasures containing gold have been discovered from as early as 4000BC, so the precious metal has been notorious for its relevance to power and wealth for many millennia. 041b061a72