Low-interest rates and the Covid-19 meltdown triggered a gold bull market, which saw gold rise from slightly above $45 per gram to more than $56 last year. Gold prices may reach all-time highs in 2022 if the current state of financial instability persists, which will most certainly be driven by Russia’s attack on Ukraine and the slowdown in economic development that has followed the pandemic.
Investing in gold is essential as inflation continues to rise around the world. As inflation spiked to its highest level in the United States in 40 years and in Europe in 13 years last year, many investors sought to cushion themselves. Central banks are expected to purchase a significant amount of gold this year due to rising inflation. In 2021, central bank buying surged by an astonishing 82%, with Thailand topping the list with a purchase of 90 tons of gold, according to the World Gold Council.
“A perfect storm” of growing investor and central bank demand, along with strong Asian retail demand, led Goldman Sachs to raise its 2022 gold projection to $2,500 per t oz. Here, we’ll take a look at some of the ways you might participate in the global gold market.
Why invest in gold?
Investors typically resort to gold as a safe haven when times become difficult or international crises like the one between Russia and Ukraine throw the markets into panic. Investors seeking a safe haven with an established track record of returns are increasingly turning to gold in these times of rising inflation and stock market volatility.
Gold is popular with investors for a variety of reasons, and its features make it an excellent alternative to typical investments like stocks and bonds. They see gold as a store of value despite the fact that the asset does not provide any cash flow.
However, because gold does not generate income like other investments, it should only be included in your portfolio in small amounts and with extreme caution in the event of a downturn.
Investment options in gold for 2022
Gold mining companies
To invest in gold mining, refinery, and trading company stocks is a far easier prospect than buying actual gold. You can use your brokerage account to make an investment in gold mining firms. Keep in mind that gold firm share prices are linked to the price of gold, but they are also influenced by fundamentals such as a company’s present profitability and costs. If you’re looking to diversify your portfolio, investing in gold firms is just like investing in any other stock.
It is not uncommon for the value of gold stocks to be influenced by the price of gold. Nonetheless, gold stocks can still make money even if the price of gold is low. Also, a significant number of gold mining corporations pay out considerable dividends, which can serve as an additional incentive for investors to acquire gold mining stocks rather than actual gold. Franco-Nevada Corp. (FNV) and Barrick Gold Corp. (GOLD) are some of the world’s leading gold mining companies that you may invest in.
Gold bullion and physical gold
Gold bullion is a popular investment option for a wide range of people. A refined form of gold, gold bullion can be bars, ingots, or coins and can be used for commerce. It is possible for investors to buy them on the internet or in person from a precious-metals dealer, bank, or brokerage.
Physical gold products, such as jewelry and coins, are also available to investors. Jewelry, on the other hand, frequently has a markup in price because of the labor and retail costs associated with making it.
Physical gold is not as easy to keep as other financial assets, like stocks. It takes up a lot of room and has the added danger of being stolen or lost.
Investing in Gold ETFs
By investing in gold ETFs, investors gain exposure to the long-term stability of the yellow metal without having to hold the underlying asset themselves while also benefiting from more liquidity and a broader range of investment options. ETFs come in a variety of forms. ETFs can track the price of bullion or industry trends via futures, options, or passively managed funds that track trends.
ETFs are a great alternative through which investors can derive the benefits of the gold market. However, for long-term investors, the higher long-term capital gains tax rate of up to 28% on many gold ETFs is a significant concern. SPDR Gold Shares ETF, SPDR Gold MiniShares Trust, iShares Gold Trust, and VanEck Vectors Gold Miners ETF are some of the most popular gold ETFs, and each of them has an AUM of more than USD $3 billion as of this writing.
You enter into an agreement to acquire or sell gold at a future date through the purchase or sale of a futures contract. In exchange, the actual thing that is traded in the contract itself. As a result, gold futures are more accessible than real gold and do not incur administration fees; however, brokers may impose a trade fee (also known as a commission) for each contract. However, if you’re a novice trader, you should avoid futures contracts because of the high risk involved.
Investors go for so-called safe-haven investments in uncertain times. There’s no shortage of things to worry about right now, with a major military conflict, widespread inflation, global economic uncertainty, and rising interest rates. Global investors may begin to turn to gold as a form of wealth protection in the wake of these difficulties and the ensuing panic.