Gold prices have flagged recently after January’s rally, which saw the precious metal achieve its best start to the year in more than a decade.
However, gold is now approaching its third consecutive week of losses, with gold’s bullish New Year disrupted by a surprisingly strong US employment report that revealed job gains of 517,000 in January.
The next big catalyst for gold will be the U.S. inflation report, which could either underline America’s robust economic performance and drive the precious metal down further or see the dollar revert and gold prices rebound. But why does gold remain such an important investment asset, and does it pay to invest in it during 2023?
Why is Gold an Historically Popular Investment?
Gold is one of the more stable and popular investment assets, and one that is renowned as a secure source of wealth during economic contraction and recession.
This results in increased demand and soaring prices as economies contract, so investors are able to buy gold through a number of different vehicles and see their investment grow for as long as economic instability persists.
Gold’s unusual relationship with the macroeconomic climate also makes it a crucial element of any diversified investment portfolio.
More specifically, storing wealth in gold minimises your exposure to risk during times of economic tumult, while helping you to retain a reliable source of income instances where bond and stocks values depreciate.
Historically, the price of gold has also appreciated incrementally over time, despite its overt short-term volatility and response to economic events. Interestingly, this highlights similarities between gold and Bitcoin, with these two assets recording record-high levels of correlation through 2022.
Is Now the Time to Invest in Gold? How Best to Leverage Your Capital
There are other reasons why gold may make the ideal real-time investment too. Certainly, gold’s resilience in the wake of economic contraction make it a viable hedge against inflation, which hit 10.5% in December and remains disproportionately high when compared with the Bank of England’s (BoE’s target of 2%).
Gold is also highly liquid and can be easily converted to cash at present, with type of flexibility and liquidity highly beneficial to any portfolio during an economic downturn.
The recent devaluation of gold may also create a narrow window of opportunity to invest, with prices expected to increase once again as governments battle to control inflation and avoid the threat of recession.
But what are the best ways of investing in gold at present? While you can buy corporeal gold bullion, this is prohibitively priced and encumbers you with ownership of the underlying financial instrument. So, here are some other options to keep in mind:
Gold Contracts for Difference (CFDs): CFDs are speculative investment vehicles, which enable you to invest based on future price movements both positive and negative. This affords you far greater flexibility when trading gold and accessing short-term gains, as you speculative on price movements within a designated timeframe. CFDs are an excellent way of trading commodities like gold, especially in a volatile economic climate.
Gold Exchange Traded Funds (ETFs): Gold ETFs also offer a flexible route to gold investment, while they’re also considerably cheaper than buying gold bullion. Typically, analysts prefer physical-backed ETFs such as iShares Physical Gold rather than highly leveraged products, as the latter rely on derivatives to boost returns in a more costly and complex manner.
Gold Mining Stocks: Investing in gold mining stocks is another viable option, and one that offers access to a broad range of equities involved in gold exploration. However, this requires considerably more research than simply tracking or forecasting the price of gold, while other factors may be in play such as other exploration activities, the wider business strategy and