Gold prices have recently crossed $3,500 per ounce, an all-time high, and the precious metal is emerging as one of the hottest investment plays. With all the geopolitical turbulence, economic uncertainty, and weakness of the U.S. currency surrounding us, gold is grabbing the headlines. However, should you be investing in gold now? In this blog, we will discover what is driving this increase, compare it to silver, and answer the question, Is the time right to invest in gold?
Key Factors Behind Gold’s Surge
1. Anticipations of U.S. Federal Reserve Rate Cuts
Often, gold prices increase as interest rates fall, and the current expectations of the Federal Reserve cutting rates have diminished the attractiveness of interest-accruing investments such as bonds and savings accounts. Investors are then turning to gold because it has better value preservation during uncertain economic times.
Why This Matters: Lower rates mean gold is more attractive because it pays no interest. Investors are generally happy going with gold as an investment when they expect to earn little interest in savings.
2. Geopolitical Uncertainty and Economic Volatility
Gold has long been associated with safer investment during political or economic upheaval, and with increasing tensions starting in Eastern Europe, as well as in the Middle East, and concerning trade wars with major powers, investors have discovered uncertainty that suggests allocating funds into gold.
What This Means: When there is any uncertainty, gold is perceived as a stable investment with a hedge against economic risk that may impact other financial assets.
3. Declining U.S. Dollar
The U.S. dollar has become much less valuable over the last several months. As the dollar weakens, gold becomes more interesting to other investors. When the dollar falls, it raises the price of gold because it becomes cheaper for the investor holding another currency.
Key Insight: A weaker dollar raises gold demand worldwide. This pushes the price up because foreign buyers see gold as cheaper.
4. Central Bank Gold Purchases
Central banks have been purchasing gold for their reserves in recent years. This institutional demand for gold, particularly from emerging economies, has stimulated prices for consumers. Governments are shifting away from traditional currencies and moving to gold to back their respective reserves.
Why Central Banks Matter: Large institutional purchases of gold demonstrate trust in gold’s long-term inherent value. This type of institutional buying behaviour complements the market’s confidence in gold, pushing prices higher.
Why Gold is Outperforming Silver
1. Gold as a Safe-Haven Asset
Gold is universally recognised as a store of value, especially in periods of crisis. Silver has industrial value, and as such, is much more volatile than gold. During periods of uncertainty, demand is more likely to increase for gold because gold is seen as a superior source of value, making it more reliable as a safe-haven investment.
2. Silver as an Industrial Metal
Due to its industrial demand, silver has significant value, especially in electronics, solar panels, and batteries. Therefore, silver is bound to have more price volatility and instability in comparison to gold. Industrial demand for silver is greatly influenced by global economic conditions. Whereas gold is associated primarily with acting as a store of value, thus is not nearly as sensitive to industrial slowdowns as it does not operate with as much volatility in prices from industrial demand.
3. Scarcity and Mining Difficulty
Gold is rare and costly to mine, and the fact that it is more difficult to mine makes it easier to view as more valuable. As a result, gold is seen as a more scarce resource. Gold’s more limited supply compared to silver will add pressure to the price of gold going forward.
4. Sentiment around Investment
Gold is favoured predominantly as a safe-haven asset by institutional investors. While silver is a valuable precious metal, its universal trust and long-term stability fall short of gold’s track record, leading to underperformance of silver during uncertain times.
Key Differences at a Glance:
| Factor | Gold | Silver |
| Price Volatility | Less volatile, stable over long periods | More volatile, influenced bu industrial demand |
| Primary use | Safe-haven investment, store of value | Industrial metal (electronics, solar panels) |
| Scarcity & Mining Difficulty | Rare and costly to mine, more difficult to extract | Easier to mind, more abundant |
| Historical Significance | Universally recognised as a store of value | Less historical significance as a store of value |
| Economic Impact | Act as a hedge against inflation and economic uncertainty | Sensitive to economic cycle and industrial demand |
| Institutional Demand | High demand, especially from central banks | Lower institutional demand, more focused on industrial use |
| Investment Risk | More stable, less affected by market fluctuations | Higher risk due to its industrial ties |
Is It a Good Time to Invest in Gold?
Pros of Investing in Gold Now:
- Hedge Against Inflation: Gold, viewed as a safe-haven asset in inflationary periods, represents a way to preserve purchasing power, as inflation trends are rising globally.
- Safe-Haven Asset: Gold provides creative protection during economic or geopolitical uncertainty, as it typically remains more stable when other asset classes are weak.
- Portfolio Diversification: Gold provides excellent portfolio diversification, and adding gold can reduce the overall portfolio risk, especially for investors with high concentrations in stocks or bonds.
- Strong Underlying Demand: Ongoing institutional demand, particularly from central banks, is ultimately supportive of gold prices in the long term.
Cons of Investing in Gold Now:
- Price Correction Potential: Gold is in an attractive position today, but is always at risk of corrections in the market. If the world economy normalises, and/or if central banks stabilise or rewind their rate cuts, gold prices may decline.
- No Cash Flow: Gold does not yield dividends or interest, as long-term investors expect with stocks or bonds, and gold creates no income to the investor. While great for wealth retention, it does not produce monetary dividends from its ownership.
- Flushed Bottom: Presently, gold is competing with record highs in price, and depending on how much is paid for the price, it may discourage investors from pulling the trigger to buy gold, irrespective of cost. Short-term gold should hold its value very well in the long term.
How to Invest in Gold
If you’re considering investing in gold, you have several options:
- Physical Gold: You can invest in gold in the form of bars, coins, or jewellery. However, if you decide to invest in physical gold, storing it securely and insuring it may be expensive.
- Gold ETFs: Gold exchange-traded funds (ETFs) are a way to invest in gold without having to actually own it. ETFs track the price of gold, and they are a good option if you want to gain exposure to gold efficiently.
- Gold Mining Stocks: You can also choose to invest in companies that mine gold. This way, you can get some exposure to the gold market, but you also have the additional risk of the company’s performance.
- Gold Futures and Options: If you want to take on some risk and you are more experienced, you could consider trading gold futures or options, which allow you to speculate on price movements. But they are tremendously risky, and more appropriate for short-term traders.
Things to Keep in Mind While Investing in Gold
Before you start investing in gold, consider the following:
- Investment Duration: Gold has historically done well over long periods. If you want a short-term investment where you’ll quickly make money, gold is probably not what you want, as prices tend to fluctuate quite a bit short term.
- Market Timing: Gold has been going up and is near record highs, but keep in mind that market timing is tough. Prices may correct, or too many people may want to sell, but gold’s long-term value remains through economic uncertainty.
- Diversification: Don’t put all of your eggs in one basket. Gold is a great asset, but it should be in addition to a portfolio of other kinds of investments. Just ensure your overall portfolio is diversified through various asset classes.
- Risk Tolerance: Know what your risk profile is. Gold can be volatile in the short term, and investing in gold mining stocks or options has added levels of risk.
How is TFX Adding More to It?
For investors interested in diversifying their portfolios by trading in gold and other commodities, TFX offers a robust platform with multiple features:
- Diverse Asset Options: TFX offers a large variety of commodities, including gold, silver, and energy products.
- In-Depth Trading Options: In addition to a diverse commodity offering, you can enhance your trading decisions with advanced charting and analysis tools.
- Education and Insights: TFX has extensive educational resources that can increase your knowledge and develop your trading skills.
- User Experience: A seamless trading experience for novices and experienced traders alike.
Conclusion
Gold’s price is way up because of shaky economies, world issues, and a weaker dollar. It’s still a safe bet against rising prices, but think about the risks of buying when it’s so expensive.
Deciding if gold is right for you depends on what you want to achieve financially and how much risk you can handle. It can be good for keeping value, but go in with a plan.
