Is it a good time to buy gold?
During times of economic instability, those looking to grow and protect their wealth may be discouraged by certain investment types due to their volatility or low returns. In 2023, the world is certainly experiencing a period of high economic uncertainty and a range of external factors are threatening the stability of key markets. With this in mind, individuals of high net worth may be wondering is it a good time to buy gold?
Let’s now look at the factors that are influencing investment choices and compare buying gold with the alternatives.
What is causing current economic instability?
Economies are cyclical – going through periods of growth and contraction. As an economy contracts it may fall into a period of recession if it shrinks for two consecutive quarters and this is effectively the lull at the bottom of the graph until things start to pick up again. There are many factors that can cause economic instability and thus result in recession, and sadly, we are experiencing most of them at the current time. Pandemics, wars and trade tensions are all global risk factors for instability and over the last few years we have experienced them all. From COVID-19 to Brexit and Russia’s invasion of Ukraine, these concurrent external factors have combined to cause a number of crises not just in the UK but across Europe and the US.
The impact of these factors has been a number of unpleasant market conditions including higher than expected inflation, high interest rates, low consumer confidence and people holding off on investment decisions.
What may have once seemed like a sound investment – for example developing a property portfolio – may, during these times of uncertainty, be too risky for some investors. Whilst others will want to take the risk of short term investments with high yields simply because they cannot predict the way markets are going to go in the longer term. Whatever causes the instability, it certainly influences where people put their money.
Buy gold or invest elsewhere?
At times like this, if you are seeking wealth protection, the big question is do you buy gold or do you invest elsewhere? Here are just a few of the alternatives you might like to consider, with a brief summary of their advantages and drawbacks.
Silver – as a physical and finite asset silver will always have an intrinsic value, which means it cannot be devalued by inflation alone. As it is used in manufacturing and electronics, there is more demand for silver, which makes it more volatile than gold but as it’s considerably cheaper, and predicted by many to soon reach an all time high, silver is still a good alternative to buying gold.
Cryptocurrency – cryptocurrencies have had a volatile few years but seem to have stabilised and now offer not only an investment opportunity but also a means of paying for everyday things. The risks will always be higher with crypto, but so can the rewards be, it just all depends on the type of investor you are.
Property – real estate has long been the favoured investment choice for many and does, in general, offer a fairly safe and stable way to protect and build your wealth. However, during times of economic instability, factors such as high interest rates, high inflation and lack of consumer spending can make it a tricky time to be a property investor.
Fiat money – fiat currencies such as the US dollar or British pound are not backed by physical assets such as gold or silver but are instead backed by governments and used as legal tender. As the value of these currencies depends on confidence in the issuing government and central bank, they can be quite volatile. Investing in fiat currencies is simple as it can be easily acquired, stored and used in paper or digital formats, however there is much concern over the diminishing value of fiat currencies and talk of China and Russia developing a new currency that is backed by gold.
The advantages of buying gold
If you have recently asked yourself ‘is it a good time to buy gold?’, then in addition to considering the current economic climate, your decision may also be swayed by the advantages it can offer.
The principle benefits of investing in gold are:
- It’s a great hedge against inflation due to its limited supply and tangible value.
- It’s a safe investment choice – Gold has been a store of value for thousands of years, and it has a longstanding reputation as a safe haven asset.
- It appreciates in value. It might not pay dividends or offer high returns but it has great appreciation potential.
- It tends to perform well during uncertain times. Generally speaking, when other forms of investment, such as stocks and real estate, are not performing well, the value of gold and silver tends to increase. This is because many prominent investors and corporations view gold as a form of insurance to offset any losses incurred by their other investments. In other words, gold is considered a hedge against poor performance in other areas.
Before making any investment decisions it’s always a good idea to arm yourself with as much knowledge as possible and stay up to date with the latest prices and market developments. If you are asking yourself ‘is it a good time to buy gold?’, you can find out more information, get advice and support to buy or trade gold from Goldstar Global. Visit their website to sign up for their free newsletter and stay informed.