Gold has long been viewed as a safe-haven asset and a hedge against inflation. In recent years, gold prices have been volatile, rising and falling in response to macroeconomic and geopolitical events. As investors look to protect their portfolios against future market uncertainty, whether gold prices are likely to rise again is increasingly being asked.
As a precious metal with a limited supply, gold has the potential to appreciate over time, particularly when investors flock to it as a safe-haven asset. In this article, we'll explore the factors that could influence gold prices in the future and whether gold is likely to rise again.
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About Gold
Gold has been used for centuries as both a precious metal and currency. It was often used as a currency in antiquity, either in coins or barter. It has also been used in jewelry and decorations since ancient times.
Gold is a very malleable metal and its high melting point makes it an ideal material for creating intricate designs. It's also a valuable industrial commodity due to its corrosion resistance and ability to conduct electricity. This makes it useful for electrical contacts, printed circuit boards and other electronic components. It is also used in the aerospace industry for thermal protection.
Gold is also used in medicine. It can treat certain kinds of cancer and its antibacterial properties make it helpful in treating certain medical conditions. Gold nanoparticles are also used in medical imaging and drug delivery systems.
Gold is also an important part of the global economy. It is traded on international gold markets and used as a hedge against currency fluctuations and inflation. Central banks worldwide also use gold reserves to support their currencies.
Why Investors Prefer Gold to Other Investments
Gold is popular as an investment for several reasons. It is a safe asset that operates independently from various economic and political factors. Gold also has the potential to appreciate over time, which puts it well above other investments such as stocks and bonds.
Gold has a relatively stable supply. Unlike other commodities such as oil, natural gas or agricultural products, gold is not subject to strict supply controls designed to increase or decrease production levels in response to demand. This means that gold is not subject to price spikes and volatility, often seen with commodities like oil.
Gold is an item of value used for centuries in modern society. As such, it has a long track record of success as a store of value for investors. Many people view gold as an important way to diversify their portfolio because it provides a safe place for their investments. Gold can be used as a hedge against inflation, which is becoming more common in many countries now.
In addition, gold can provide a form of insurance against inflation. Gold is a form of "real return" that is not affected by the ups and downs of the stock market. It allows investors to make money on their investments without taking risks or participating in stock markets.
During the Great Depression and the Weimar Republic period in Germany, gold generally appreciated while other assets lost value. During the inflationary period in the 1970s and early 1980s, gold also generally appreciated.
The situation today is not the same as during these historical periods, but gold has proven to be a valuable security against inflation. The International Monetary Fund (IMF) found that gold is a good store of value against global and regional inflation over the long term.
Gold can also be used as an investment that does not require much time or attention from investors, which makes it ideal for people in some occupations, such as retirees who want to save money for later years.
Gold is also useful as a form of currency. Gold has been used as money for thousands of years, often used in addition to or in replacement of paper money. For this reason, gold can be viewed as a store of value that can be easily exchanged for goods and services.
Historical Gold Price Movements
The price of gold has experienced a great deal of volatility throughout its long history. Throughout the centuries, gold has been used as a form of currency or as a store of value and its value has varied wildly depending on economic and political factors. In the past century alone, gold prices have seen dramatic highs and lows, with peaks in 2020, 2011 and 1980 following periods of economic uncertainty and global crises.
In the early 20th century, gold prices rose steadily from the beginning of the century until World War I began in 1914. During the war, gold prices spiked as the demand for gold increased to finance the war effort.
After the war, gold prices dropped drastically, reaching their lowest point in 1921. Gold prices then climbed until they reached an all-time high of $850 per ounce in January 1980. This peak was mainly due to inflation and the weakening of the US dollar.
After 1980, gold prices began to decline until a low of $256 per ounce in 1999. Then, in the early 2000s, gold prices began to rise again due to global economic uncertainty, including the 2001 terrorist attacks and the 2008 financial crisis.
In August 2020, gold prices hit an all-time high of $2,072 per ounce. This increase can be attributed to concerns about the pandemic and diminishing trust in global currencies.
Factors That Can Make Gold Price Rise
Investors should continue to keep an eye out for gold's demand and supply, destabilizing geopolitical events, the ongoing socioeconomic impact of the COVID-19 pandemic, future Fed rate changes, the strength of the US dollar and the ongoing trade tensions between China and other G7 countries, including the United States, Australia and Canada. All of these factors could impact the future price of gold. We'll discuss how some of these factors will likely impact the future price of gold.
Supply and Demand
Gold supply and demand are important factors affecting the price of gold. As new gold mines are created or existing mines run out, the supply of gold can increase or decrease. When the supply of gold increases, the price decreases as people turn to gold as a form of currency. Within certain limits, an increase in supply will cause a decline in the price of gold.
According to the report on the market that the WGC published in 2021, gold mine output improved by 2 percent in the previous year, but the overall supply of gold fell by a marginal 1 percent compared to 2020. The World Gold Council attributes this fall to an 11% drop in recycled gold.
Looking at the data for the first half of 2022 in the WGC's most recent trends report, gold bars and gold coin investment suffered a 12 percent year-over-year reduction to 526 metric tons (MT), largely on weakening Chinese demand.
Lockdowns imposed by the country's stringent zero-COVID policy have made it more difficult for customers to shop at retail establishments. On the other hand, increased purchasing in India, the Middle East and Turkey helped compensate for lost ground in demand.
The demand for gold jewelry in the second quarter of 2022 increased by 4 percent year over year to reach 453 MT, while the overall demand for jewelry in the first half of 2022 was 928 MT, which is 2 percent lower than the demand for jewelry in the first half of 2021.
China and India are the two largest markets for gold jewelry and both countries' citizenry has had their purchasing power ravaged by the epidemic. Traditionally, gold jewelry is responsible for 50 percent of worldwide gold demand.
Meanwhile, gold exchange-traded funds significantly increased their net inflows during the first half of 2022, totaling 234 MT. This contrasts with the 127 MT of outflows during the first half of 2021.
Gold's industrial applications include the electronics industry, which is seeing growth because of the development of nanotechnology. However, this demand segment has also been hurt by reduced demand for consumer electronics, with industrial demand for gold dropping by 2 percent year-over-year in Q2 2022 compared to the previous year.
Over the past decade, central banks have been net buyers of actual gold. Despite ongoing worldwide unrest, the WGC reports that first-half net purchases of 270 metric tons are practically identical to the average of 266 metric tons for first-half net purchases over the past five years. Its annual central bank poll reveals that one-quarter of respondents expect to enhance their gold holdings in the coming year, greater than the one-fifth who planned to do so in 2021.
Trade Tensions Between China and Other G7 Countries
Gold is an important safe-haven asset for investors and when geopolitical uncertainty increases, investors often turn to gold as a hedge against risk. As such, increased trade tensions could lead to increased demand for gold and a corresponding rise in the price of the precious metal.
The ongoing tariffs imposed by the US and China could further increase the cost of goods in both countries, leading to inflationary pressures. This, in turn, could cause investors to turn to gold as an investment option due to its status as a store of value that maintains its purchasing power over time, resulting in further price increases.
Socioeconomic Impact of the COVID-19 Pandemic
The COVID-19 pandemic has significantly impacted the global economy and, in turn, the price of gold. Since the pandemic outbreak, gold prices have risen as investors seek safe havens to protect their wealth during economic uncertainty.
The price of gold remains significantly higher than before the pandemic, a trend that is likely to continue. The primary reason for this is that the ongoing socioeconomic impacts of the pandemic, such as high unemployment rates, decreased consumer spending and increased government spending, all contribute to an inflationary environment. This means that the purchasing power of money is decreasing and the value of gold is increasing as a result.
The increased demand for gold from central banks and other institutional investors is also helping to push up gold prices. As the global economy continues to grapple with the effects of the pandemic, the price of gold is likely to remain high and could even rise further in the coming months.
The Decline of The US Dollar and the Destabilizing Geopolitical Events
The US dollar is one way many governments reserve their value. Investors will likely prefer gold when the US dollar declines against other currencies.
Inflation and interest rate fluctuations will both play a role in this. If inflation does not begin to decline, central banks will likely keep hiking interest rates. The economies in question and their national currencies will be influenced due to this event.
Also, geopolitics will remain a primary consideration for investors for the foreseeable future. The invasion of Ukraine earlier this year stunned the whole globe and significantly impacted the economy of the entire world due to the sanctioning of Russian goods.
Gold prices are anticipated to rise further if the conflict continues to escalate, as well as in the case that Taiwan and China experience similar occurrences.
Different Ways You Can Invest in Gold
You can use many different methods to invest in gold, including buying physical gold such as coins or bars, exchange-traded funds (ETFs), mutual funds, futures contracts and stocks of gold mining companies.
Buying Physical Gold
Buying physical gold is a prevalent form of investing in gold and a great way to diversify your portfolio. Physical gold can come in the form of coins, bars, jewelry and other forms of collectible items. Coins and bars are typically the most popular forms of physical gold.
Gold coins come in various sizes, ranging from 1/10th ounce to 1 kilogram. The most common gold coins are the 22k American Gold Eagle, the 24k Canadian Maple Leaf, the 22k South African Krugerrand and the 22k Austrian Philharmonic.
Bars come in various weights, ranging from 1 gram to 400 ounces. Coins and bars can be purchased from precious metals dealers and banks. We recommend specific companies which are widely known and trusted. They provide great customer service and have an excellent reputation. They offer competitive prices and buy gold directly from major bullion dealers.
Exchange-Traded Funds (ETFs)
ETFs typically hold assets such as stocks, commodities or bonds and can be bought and sold during regular trading sessions.
When it comes to gold, there are two main types of ETFs:
Investors can buy and sell ETFs like stocks and have a low-cost entry into the gold market. The advantage of ETFs is that they offer the diversification, liquidity and ease of use. Investors can also gain exposure to gold without having to take physical possession of it. Additionally, ETFs are subject to lower costs and fees than physical gold investments.
Mutual Funds
Mutual funds are professionally managed by a fund manager who chooses which investments to make and when to buy and sell them. This allows investors to benefit from the expertise of professional fund managers and diversify their investments into different sectors and markets.
Mutual funds also offer economies of scale, allowing mutual fund investors to purchase more gold than they could purchase individually.
The minimum investment required to purchase a mutual fund will vary depending on the fund but is generally much lower than the amount required to purchase physical gold. Investing in gold through mutual funds gives investors access to various products and resources, such as fund performance data, investment advice and portfolio tracking tools.
Futures Contracts
Futures contracts are a type of agreement in which two parties agree to buy and sell a certain quantity and quality of gold at a predetermined price on a specified date in the future. Futures contracts enable investors to speculate on the future price of gold by taking a position on whether they believe the price will go up or down.
The investor who believes that the price of gold will go up buys a futures contract, while the investor who believes that gold will go down sells a futures contract.
The buyer of the futures contract is obligated to purchase the gold at the predetermined price, regardless of the market price of gold on the day the contract matures. The seller of the futures contract is obligated to sell the gold at the predetermined price, regardless of the market price of gold on the day the contract matures.
The profit or loss from a futures contract is determined by the difference between the predetermined price and the actual market price of gold on the day the contract matures.
Stocks of Gold Mining Companies
Investing in gold mining stocks is an alternative way to gain exposure to gold prices without owning the physical asset. Gold mining stocks are shares of companies that produce gold. They can be listed on major stock exchanges and traded like any other stock.
You buy a piece of its operations when you invest in a gold mining company. Typically, these companies have a portfolio of gold-producing assets, such as mines, processing plants and reserves. The share price you buy represents your ownership stake in the company's profits. As with any stock, the value of your investment is based on the company's performance.
Gold mining companies typically benefit when gold prices rise as their profits increase. This is because they can sell their gold at higher prices. Furthermore, rising gold prices encourage the exploration and development of new gold deposits, which can further increase the value of gold mining stocks.
Will the Gold Price Rise in the Future?
The global economy, the health of the US dollar and central bank policies can all impact gold prices. In addition, geopolitical events such as wars, terrorist attacks and natural disasters can also affect gold prices. It is difficult to predict how these forces will play out, but gold prices could continue to rise soon.
The demand for gold continues to increase and the US dollar has been weakening, making gold a more attractive investment. After gold reached new highs above US$2,000 in 2021 and 2022, investors began hoping for another breakthrough in 2023. Will the price of gold soon reach new heights? According to several experts, gold prices have enough backing to surge beyond US$2,000.
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