Is gold a good investment right now?

By Capital.com Research Team15:42 (UTC), 18 April 2024

Gold bars on a black background — What will drive the yellow metal’s price in 2023? – Photo: Olivier Le Moal / Shutterstock.com

Gold was first discovered by Ancient Egyptians over 4,000 years ago, and to this day human fascination with its mysterious beauty continues. In the 21st century gold is valued not just for its industrial use cases, but also as an investment asset to store value, hedge against inflation and seek safe haven in times of uncertainty.

In 2020, for example, the gold prices reached a record high of $2,074 per ounce amid the pessimism brought on by the global pandemic. In 2022 the yellow metal climbed above $2,000 once again as Russia invaded Ukraine in late February.

Post-pandemic, the gold market narrative has been driven by the contrasting effects of persistently high inflation and central banks – particularly the US Federal Reserve (Fed) – raising interest rates to battle soaring consumer prices.

Gold price

What are the prospects for the gold market and is gold a good investment in 2023? In this article, we look at key drivers for the market and some analysts’ views of where prices could be heading.

What are the main use cases for gold?

Gold is predominantly used in jewellery and as an investment vehicle. Global gold demand surged 11% in 2022 to the highest in over a decade, driven by exceptional investor appetite, according to the World Gold Council.

Investment demand for gold reached 1,107 tonnes, rising by 10% year-over-year. Meanwhile, jewellery consumption - one of the biggest components - fell 3% to 2,086 tonnes, and demand for gold bars and coins grew to 1,217 tonnes.

Jewellery is also often used as a form of physical investment in gold. This is particularly popular in China and India, the world’s two largest markets, where consumers invest in gold jewellery to store their wealth and give as gifts during festivals and weddings.

Global gold demand, 2010 - 2022

Gold as an investment

Gold has served as a long-term store of value for thousands of years and has often been used as a form of payment. Some investors opt to hold around 5-10% of their portfolio’s value in a form of gold, whether physical bars and coins or instruments such as exchange-traded funds (ETFs), to diversify their holdings and potentially hedge against crashes in the value of stocks, bonds or fiat money.

Gold is denominated in the US dollars, which means its price tends to move in an opposite direction, making it a potential hedge against a decline in the relative value of the world’s reserve currency. It also tends to gain value as an investment during inflation and periods of uncertainty driven by geopolitical instability or other global events.

While other precious metals are also used as portfolio hedges, investing in gold has the advantage of high liquidity. That could allow investors to quickly exchange their gold for cash at any time. Buying gold online has become increasingly accessible for investors.

Gold jewellery, coins and bars are ways for investors to pass on their wealth as an inheritance, and are alternatives to holding gold stocks.

In the meantime, it must be noted that investing in any financial instrument, including gold, carries risks. As such, no asset can be considered safe. You should always do your own research. Keep in mind that past performance is no guarantee of future returns. And never invest more than you can afford to lose.

What’s driving the gold market?

The gold market gained bullish momentum in the first month of 2023, rising over 7% in January supported by China’s reopening and hence the expected resilience in demand. Yet since then the precious metal retreated to a five week low, slumping to $1,848 as of 14 February.

Gold prices, 2018 - 2023

“If you look at where gold is trading now versus three months ago you are likely to be more comfortable with its potential to be a good investment for 2023,” said Daniela Hathorn, Capital.com’s market analyst.

She pointed out that in 2022 “the weight of high inflation and tight monetary conditions saw gold prices drop to a two-and-a-half-year lows” as investors preferred instruments with higher yields - such as bonds - over non-yielding gold. Daniela added:

“The landscape has changed in the last three months, mostly because of the start of the disinflationary period which has led to beliefs of a recession in 2023. This allowed gold to rally 20% from the November 2022 lows but since the beginning of February 2023, it has pulled back significantly, meaning the move from the November lows to the current price is down to just above 13%.”

The US inflation rate came at 6.4% in January 2023, declining for the seventh consecutive month and signalling disinflation in the US economy. The US Fed, meanwhile, hiked the interest rates by 25 basis points (bps) in the February meeting - in contrast to aggressive 50 bps and 75 bps implemented in 2022.

Meanwhile, the latest US jobs data surprised on the upside, with over a million jobs added to the economy and decades-low unemployment rate of 3.4% in January. Daniela explained:

“The issue for gold now is that the latest data has shown an unexpected resilience that has caused market participants to rethink their views on the outlook of the US economy, moving from a recession mentality to potentially a ‘no landing’ scenario, meaning inflation will come down slowly without growth being hindered in the process, and this has caused gold to retreat.”

Is gold a good investment in 2023?

Is it a good time to buy gold and hope for a rebound in the price? Commodity analysts were cautious to answer this question in the current interest rate environment. Analysts at Australia New Zealand (ANZ) bank noted on 9 February:

“Gold is benefitting from a weakening USD and expectations of the Fed tapering its monetary tightening. Inflation is still well above the Fed’s target range of 2%, and the dollar’s direction could reverse with any hawkish comments from the central bank. We expect a price correction in the short term.”

The analysts forecast that gold will trade down to $1,730 by the end of the first quarter of 2023, and move up to $1,900 by the end of 2023. However, the price could then fall slightly to average $1,895 in 2024.

Analysts at Canadian investment bank TD Securities were bearish on the prospects for gold in the first quarter of 2023:

“Notwithstanding the recent rally, a continued sharp increase in US real and nominal rates along the short end of the curve is projected to drive gold toward $1,575/oz in Q1-2023. The yellow metal may well start to trend up toward $1,800+/oz after Q1, as it becomes clear that the Fed is approaching the end of its tightening cycle and the market starts to look toward cuts on the horizon.”

Gold could rebound from $1,800 at the end of 2023 to $1,900 by the end of 2024 and average $1,875 in 2025, according to the bank’s 2023 outlook report in November 2022.

However, analysts at UK-based Standard Chartered continued “to see gold as a core holding and a key portfolio diversifier… we expect the physical market to pick up the baton from here as we enter the seasonally strong period for consumption. The recent escalation of the Russia-Ukraine conflict is likely to drive safe-haven flows to gold, keeping it well supported. On a 12-month horizon, we believe gold will move higher as bond yields moderate and the USD rolls over.”

According to Capital.com’s Daniela, the outlook for gold will remain dependent on the US economy data and investor sentiment:

“If data going to point towards a resilient US economy whereby we see slow disinflation coupled with resilience in the jobs data and GDP, expect gold to struggle…If on the contrary, the data continues to point towards economic hardship that forces the Fed to unwind the tightness in the monetary policy, then gold is likely to resume the move higher towards $2,000 per ounce.”

Final thoughts

When considering whether gold is a good investment right now, it’s important to remember that financial markets remain extremely volatile, making it difficult to accurately predict what the gold price will be in a few hours, and even harder to give long-term estimates. As such, analysts can and do get their predictions wrong.

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and a wide range of expert commentary before making any trading decision. Note that past performance is no guarantee of future returns. And never trade more than you can afford to lose.

Is gold a good long-term investment?

It is important to do your own research to determine whether gold is a good fit for your investment portfolio. That will depend on your risk appetite, portfolio composition, investing goals and how much you intend to invest, among other factors. You should never invest money that you cannot afford to lose.

When is a good time to buy gold?

The best time for you to invest in gold will depend on your investing strategy, risk tolerance and portfolio composition, among other factors. Always do your own research on the market.

Should I invest in gold now?

Whether gold is an appropriate investment for your portfolio at this time will depend on your personal circumstances and risk tolerance. Do your own research. And never invest money that you cannot afford to lose.