The “gold fever” is up and running, with gold being the best-performing precious metal since March. In April 2024, the price of gold hit its new all-time high of around $2,290 an ounce—roughly a $210 increase from December’s record highs.
Gold's shocking yet, to a certain extent, expected surge in price was sparked by underwhelming U.S. economic data. The market is anticipating a cut in Interest Rates this year, as the price of gold directly correlates with the Federal Reserve's rates: the higher the Interest Rate, the cheaper the gold. Therefore, gold prices are expected to rise. The question is not if gold will reach $3000, but when.
Gold as an inflation hedge
Recent data aside, gold has historically acted as an inflation hedge due to its unique ability to act as the sole alternative to fiat currencies that largely drive inflation through monetary policy. The upward trajectory of gold prices corresponds with periods when investors seek risk mitigation, as evidenced by the uptick in gold buying right now.
When it comes to investing, there are four main ways to do so if you want your gold assets to protect against inflation. You can decide to acquire physical gold, engage in gold futures, invest in gold mining company shares, or participate in gold ETFs—whether deliverable or non-deliverable. Three of these investment options have distinctive nuances though they are more favorable. When navigating these investment choices, the decision mostly hinges on the investment horizon and desired returns.
For instance, gold futures offer substantial leverage but lack delivery, while gold ETFs provide exposure to real precious metal trading via funds, though with additional commissions. Investing in gold mining company shares is a propitious option but requires a deeper understanding of market dynamics, changing legislations across countries, and production forecasts.
Another nuance is the investment horizon. Short-term gains better resonate in futures trading, medium-term objectives align with ETFs, and long-term investment goals are more suited to investing in gold mining company shares.
The fourth investment option is acquiring physical gold. There is a historical tendency for central banks to obtain physical gold, as they are in a better position to store such assets. In recent years, nations like China, Turkey, Poland, and India have been pushing central banks to buy gold. On an individual level, there is also a high demand among the common citizens, which can be illustrated by their proactive accumulation of different forms of physical gold. Gold holds financial and cultural significance in such countries as India, with inheritance and dowries often taking the form of this yellow metal.
So, why is acquiring physical gold not such a favorable investment option? Physical gold is characterized by inconvenience and risk, attributed to substantial price spreads and strict storage conditions. For instance, a single scratch on a gold bar can lead to a significant price decline compared to an undamaged gold bar. These factors have a great impact on individual investors’ considerations.
What’s next?
As the decision to decrease Interest Rates is consistently delayed, gold has gained new momentum, reaching its all-time high of $2,290. With geopolitical tensions on the rise, investors will seek ways to minimize risks, and gold investment is projected to emerge as a sanctuary against inflation.
Gold's shocking yet, to a certain extent, expected surge in price was sparked by underwhelming U.S. economic data. The market is anticipating a cut in Interest Rates this year, as the price of gold directly correlates with the Federal Reserve's rates: the higher the Interest Rate, the cheaper the gold. Therefore, gold prices are expected to rise. The question is not if gold will reach $3000, but when.
Gold as an inflation hedge
Recent data aside, gold has historically acted as an inflation hedge due to its unique ability to act as the sole alternative to fiat currencies that largely drive inflation through monetary policy. The upward trajectory of gold prices corresponds with periods when investors seek risk mitigation, as evidenced by the uptick in gold buying right now.
When it comes to investing, there are four main ways to do so if you want your gold assets to protect against inflation. You can decide to acquire physical gold, engage in gold futures, invest in gold mining company shares, or participate in gold ETFs—whether deliverable or non-deliverable. Three of these investment options have distinctive nuances though they are more favorable. When navigating these investment choices, the decision mostly hinges on the investment horizon and desired returns.
For instance, gold futures offer substantial leverage but lack delivery, while gold ETFs provide exposure to real precious metal trading via funds, though with additional commissions. Investing in gold mining company shares is a propitious option but requires a deeper understanding of market dynamics, changing legislations across countries, and production forecasts.
Another nuance is the investment horizon. Short-term gains better resonate in futures trading, medium-term objectives align with ETFs, and long-term investment goals are more suited to investing in gold mining company shares.
The fourth investment option is acquiring physical gold. There is a historical tendency for central banks to obtain physical gold, as they are in a better position to store such assets. In recent years, nations like China, Turkey, Poland, and India have been pushing central banks to buy gold. On an individual level, there is also a high demand among the common citizens, which can be illustrated by their proactive accumulation of different forms of physical gold. Gold holds financial and cultural significance in such countries as India, with inheritance and dowries often taking the form of this yellow metal.
So, why is acquiring physical gold not such a favorable investment option? Physical gold is characterized by inconvenience and risk, attributed to substantial price spreads and strict storage conditions. For instance, a single scratch on a gold bar can lead to a significant price decline compared to an undamaged gold bar. These factors have a great impact on individual investors’ considerations.
What’s next?
As the decision to decrease Interest Rates is consistently delayed, gold has gained new momentum, reaching its all-time high of $2,290. With geopolitical tensions on the rise, investors will seek ways to minimize risks, and gold investment is projected to emerge as a sanctuary against inflation.