When Is the Best Time to Buy Gold?
Historically, gold has always been considered a safe haven asset during periods of economic uncertainty.
However, under certain conditions, the price of gold can become quite volatile.
Since there are actually several factors that can affect the price of gold, if you are interested in this asset, it’s likely that you are asking yourself the following question:
Is now a good time to invest in gold? Know when to buy gold.
Don’t worry, in this guide, we’ll give you the simplest possible answer to this sometimes complex question.
What drives the price of gold?
Usually, gold price rises when some type of unexpected event occurs that could have an uncertain influence in the future of the economy. This may include wars or political events that somehow affect the financial markets.
If a calamity strikes and the value of other assets — such as stocks — begin to suddenly drop in value, many investors traditionally begin to get rid of these “commodities” and seek refuge in gold.
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Since gold is a limited resource and only a certain amount is mined each year, increased demand causes the price of gold to rise. This happens because gold is a raw material used in different industries and therefore has a real value.
On the contrary, when the world has political and economic stability, investors expand their portfolio by
acquiring products that provide very high returns, usually financial products. At this point, gold becomes
less attractive, so its price drops.
Other factors that can also influence the price of gold are:
- The value of the U.S. dollar – When the dollar is strong, the price of gold stays low. When the dollar weakens, the price of gold rises.
- Global demand – Since gold is used in jewelry and electronics manufacturing, when global demand for these products increases, the price of gold rises.
- Gold production – If the main gold producers in the world — such as China, U.S., Russia, etc. —decrease their annual production, there is a shortage of gold and therefore an increase in the price.
The current market state for gold – 2022
Based on the above concepts, let’s analyze the current scenario.
Although during the first quarter of 2022 gold surpassed the barrier of $2,000 an ounce, mainly due to the geopolitical scenario of Russia’s invasion of Ukraine, as of March a progressive decline in the price of gold began until it reached the current price of around $1,790 an ounce.
On the other hand, inflation in the United States continues to rise — 9.1% YTD. These levels of inflation make investors think that the Federal Reserve (Fed) will continue to raise interest rates aggressively to try to reduce inflation in the country.
But even with high inflation, the price of gold still doesn’t react positively.
It seems contradictory, since in periods of uncertainty like the current one, gold has always been used as a hedge against inflation.
Even though the war in Ukraine continues, this drop in the price of gold is partly related to the increase in interest rates by the Fed.
An increase in interest rates and a more expensive dollar negatively affect the price of gold, which tries to compete with other options for the attention of investors.
The reality is that having too much gold is not attractive to investors as they earn less from their holdings in the precious metal.
This geopolitical uncertainty, high inflation and the market downturn are some of the factors that are currently contributing to keep the price of gold down.
So, the million dollar question is…
Should you buy gold now?
Remember this: the simple fact that there are investors who continue to bet on a low price of gold within the current context of uncertainty, opens the possibility that the price of gold begins to rise suddenly, at any time.
Although gold has worked over the years as a hedge against inflation, it is also true that the precious metal has proven to fulfill this function over longer periods of time.
In reality, very little time has passed since the start of the war in Ukraine and the inflationary boom in the United States, so gold hasn’t had the time to perform as a protection against the economic situation.
But many analysts believe it’s only a matter of time before it fulfills that traditional role again.
In addition to its use for the creation of jewelry and electronic devices, gold shows an inverse correlation with the U.S. dollar and in the event of a fall in this currency, the markets boost its demand, seeking refuge from economic instability.
That is to say, the mere fact that there is inflation and that it is maintained for long enough, constitutes an incentive for a potential increase in gold prices and the longer inflation remains high, the more possibilities there are that this change in the price of the precious metal will occur.
The preferences of the new generations also influence the price of gold Even with a falling price, analyzes carried out by some experts, such as Larry Williams, indicate that this is an ideal time to buy gold.
In fact, the precious metal was recently recommended by Jim Cramer, the famous host of CNBC’s Mad Money show.
Precisely, the expert made this statement based on the technical analysis by Larry Williams:
“The charts, as interpreted by the legendary Larry Williams, suggest that the general public’s giving up on gold en masse and he thinks that makes it the perfect entry time to do some buying.”Larry Williams
According to this analysis, the general public is choosing to invest in newer high-return assets, such as cryptocurrencies, so if we consider the falls in the price of gold and estimates of long-term inflation, this would be a good time to make precious metal investments, not only in gold, but also in silver.
The analysis by Williams also highlights the fact that small speculators are betting on the downside of the price of gold, something that could be an incentive to set a floor and produce a rebound effect, starting an uptrend.
Available options if you want to invest in gold
If after these analyzes you have decided to invest in gold, here are some of the most common ways to do it.
Keep in mind that it isn’t always necessary to keep your gold at home, as there is also the possibility of using a gold investment account.
Also known as bullion, gold bars are usually sold in grams and ounces. You can buy these bars from dealers with a physical or online store, or even from individuals. Consider that transportation implies additional costs.
Gold coins can be found in the form of collectibles, so it’s common to pay an additional premium. These coins typically have a slightly lower gold content than bars and can be purchased from individuals, pawn shops, and online stores.
As with coins, if you decide to buy gold jewelry, you will most likely end up paying more money than the gold content available in the piece is worth, so be careful.
A Gold IRA is a special retirement account similar to your standard individual retirement account, but instead of storing paper assets like bonds and stocks, it stores physical gold and other precious metals in the form of bars and coins.
You can open an IRA account through your trusted financial institution and comfortably fund it even through a qualified plan such as 401 (k) or other similar ones. The main advantages of this method is that these accounts are subject to tax discounts and that you can manage your funds with great comfort.
The bottom line
Investing in gold involves risk, no matter where you are in history or what the market conditions are.
The best time to invest in gold should be determined based on the characteristics of your portfolio and your level of risk tolerance.
Do your research diligently and never invest the money you need to live.
Luis Manzanilla is a Computer Systems Analyst living in Venezuela. After working for some time for a FinTech company, he decided to follow his passion and started working as a freelancer.
Since 2015, Luis has been creating content for online businesses to help grow brand awareness, educate readers and gain new customers, focusing mainly on the following topics: personal finance, online business, digital marketing, and technology.
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