Is It Time To Invest In Gold? The collapse of FTX rocked the crypto world, and investor losses appear to be in the billions.
After years of existing on the outskirts of the economy, crypto entered the mainstream during the pandemic, and even the most skeptical traders were starting to put cash into digital currency.
FTX captured a large portion of the crypto trading market because it made the process simple, affordable, and secure. Or so investors thought until November 2022.
Cryptocurrency attracted investors because it has certain key features that other assets lack. The biggest is its disassociation with the larger economy. It doesn’t move in tandem with the stock market, which is appealing at a time when economic conditions are uncertain, and at the moment, economists are suggesting that things could get worse before they get better.
It’s an unusual time in history, as many citizens have lost confidence in their governments. Inflation is wallet-pinchingly high, and interest rates are rising, meaning most households feel financial pressure. Politicians can’t agree on a fix and spend more time arguing than acting in the best interests of their constituents.
On top of that, there is a perception that politicians are profiting from their government positions through insider trading. Under the circumstances, confidence in the government is strikingly low, so it’s no wonder crypto attracted a lot of new investors.
However, even before the FTX disaster, there were signs that the crypto was in trouble, as the values of most coins were down. When FTX collapsed, it was the last straw for many investors. They sold what they had and decided to find safer, more reliable alternatives.
Some returned to the traditional stock market, and others explored bonds. Those who wanted the advantages of an asset that moves independently of the larger market went back to basics and bought gold.
Is gold a good investment? What benefits does it have over stocks? Is now the right time to invest in gold, and if so, how do you buy gold?
Why Invest In Gold?
Gold has been a part of civilization since the very earliest days. Archeological evidence dating back thousands of years shows gold was treasured by kings, queens, emperors, and pharaohs. Historical records indicate it was used for trading since the first merchants began moving goods from one part of the world to another.
Gold has intrinsic value because its unique properties make it useful in a variety of applications. That puts it in high demand. However, the fact that it is so scarce means it doesn’t come cheap. High demand and low supply ensure gold holds its value, even when the rest of the market comes crashing down.
Among other rare properties, gold is easy to melt and reshape according to need and doesn’t corrode. It conducts electricity and heat, which makes it a crucial component of certain high-tech hardware, and it can be stretched and flattened into extremely thin wires and sheets without breaking.
On top of all that, gold is particularly beautiful. It is unusual in that it absorbs some light but still reflects, making it the metal of choice for high-quality jewelry and other adornments.
Since gold can be relied upon to hold its value and there is every reason to believe that it will remain in high demand, investors buy gold to stabilize their portfolios, increase diversification, and protect against common risks.
For example, gold offers a hedge against inflation since the price of gold tends to go up as the cost of living goes up. In the rare circumstance of deflation, gold prices have historically increased, and gold can withstand periods of geopolitical uncertainty. That includes extended lengths of time in which confidence in government is low.
Is It Time To Invest In Gold?
From any perspective, now is the right time to invest in gold. In the short term, prices started trending up when FTX collapsed, but they remain well below their most recent peak of approximately $2,000 in March 2022.
That indicates there is more room to grow in the relatively near future, and of course, gold has always been a smart choice for reaching long-term financial goals.
On the technical side, the current pattern visible in gold prices indicates that now is the time to invest in gold. A monthly cup and handle pattern stretches back years, indicating the strong likelihood that prices will trend upward.
Cup and handle patterns are made when price patterns create a “U” shape, the cup, then extend out with a slight downward bend. A chart of gold prices shows the left lip of the “cup” occurred in October 2012.
The price went down gradually until 2016 – the bottom of the “U.” Gold prices then began climbing again, and in November 2020, they formed the right lip of the “cup.” The “handle” followed, extending outward with a slight downward shift through the end of 2022.
The cup and handle pattern forms when investors begin to test previous highs, and the downward shift in the handle occurs when some investors sell the assets they bought at those previous highs. In most cases, that downward pressure is only temporary, and then the price goes up. If that occurs as expected with gold, those who buy now will be in the right position to profit.
The beauty of the cup and handle pattern in gold prices over the past ten years is that longer cups have historically been more likely to result in rising prices. This cup is exceptionally long – the pattern usually takes no more than a year to fully play out.
How To Invest In Gold
There are multiple ways to invest in gold, beginning with the obvious: to buy gold bars, coins, or bullion. Gold jewelry is an option but tends to be more expensive, as buyers also pay for the piece’s design and production.
Purchasing physical gold isn’t always practical, as storage space and security become problematic as assets grow. The next best thing, especially for less experienced investors, is to buy shares of mutual funds or exchange-traded funds (ETFs) that are focused on gold.
These products offer the advantages of investing in gold without the complications associated with buying and storing the precious metal. Essentially, each share represents ownership in the fund’s assets, which may be the metal itself, interest in gold industry companies such as mining companies, or a combination of both.
For example, SPDR Gold Shares is the biggest ETF that is fully backed by physical gold. Its assets consist entirely of London Good Delivery gold bars, which it keeps in a vault. As of August 31, 2022, the fund owned a total of 31,582,529 ounces of gold valued at approximately $53.7 billion.
Other options include:
Those who prefer funds that get into the mining industry may wish to consider these:
As with any mutual fund or ETF purchase, expenses and fees can create a substantial drag on returns. Avoid funds with high expense ratios, and bear in mind that past performance does not guarantee future results.
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