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Last Updated on: 4th August 2022, 05:03 pm
The prospect of a looming global recession has been on the minds of investors and analysts around the globe from the outset of 2022. Whether or not we witness a definitive economic decline in the foreseeable future remains to be seen.
Yet, historically regarded as a hedge against economic uncertainty, increasingly investors are looking into the short-term benefits of investing in gold. In this article, 10 financial investors discuss whether now is a good time to buy gold.
Table of Contents
- A Good Store of Value in Times of Recession
- Long-Term Returns are Far Below Those of Equities
- Be Cautious and Do Your Homework
- A Form of Insurance as Much as an Investment
- The Middle of the Calendar is the Best Time to Buy Gold
- A Wise Decision if a Financial Crisis or Recession is Imminent
- Now is a Great Time to Buy Gold
- Ensure that its Allocation Does not Exceed 10% to 15% of Your Total Investment Portfolio
- Even if it is Only for Asset Allocation, it Might be Worthwhile
- Every Investor Should Have Some Gold
- Economic Uncertainty Necessitates Diversification
A Good Store of Value in Times of Recession
“Gold continues to be a good store of value in times of recession. There are definitely other assets, including other precious metals, real estate, and U.S. government bonds, that also offer a strong price floor in times of uncertainty, but gold remains the oldest and one of the most enduring investment assets. You won't necessarily earn outstanding returns on your investment, but you're extremely likely to come through any period of economic turmoil with most of your value intact.”
Carter Seuthe, CEO, Credit Summit
Long-Term Returns are Far Below Those of Equities
“During times of market turmoil, one always hears talking heads espousing the benefits of investing in gold. Simply put, one should never consider investing in gold. If you have a long time horizon you should not invest in precious metals, as the long-term returns are far below those of equities.
At the end of 1925, the price of an ounce of gold was $20.63. At the end of 2020, an ounce of gold sold for $1893.66. Over that 95-year period, the precious metal returned 4.87% compounded annually. Over that same time period, according to Ibbotson Associates, the compound annual rate of return of a diversified portfolio of large stocks (the S&P 500) was 10.3%. That same $20.63 invested in gold at the end of 1925 would have grown to $225,788 if invested in the S&P 500.
Investing in a diversified basket of small stocks provides even greater returns. The compound annual rate of return of a basket of small stocks over that 95-year period according to Ibbotson Associates was 11..9%. That same $20.63 would have grown to $866,002 at the end of 2020. The overall return to gold was less than 1% of the return to a diversified basket of common stocks.
While having a small position in precious metals may dampen portfolio volatility in the short run, the tradeoff between slightly dampened volatility and the lost long-term return is certainly not a prudent one.
Gold is a speculative investment, based on the Greater Fool Theory. The price of gold is not determined by its intrinsic value but simply by its expected selling price to someone in the future.
But, don’t listen to me, listen to Warren Buffett who in 2011 when meeting with students at the CFA Institute Research Challenge explained his rationale concerning gold as an investment as follows: ‘The world’s gold stock is about 170,000 metric tons, which if melded together could create a cube of about 68 feet per side; the cube would be worth about $9.6 trillion. For that much money, one could buy all the cropland in the United States, purchase 16 Exxon Mobils, and have about $1 trillion of walking around money left over.’ He asked the students, which one they would rather have. He also noted, ‘You can fondle the cube, but it will not respond.'”
Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University
Be Cautious and Do Your Homework
“Let's face it: we're in a recession. And when times are tough, people tend to flock to the safe haven of gold. So yes, now might be a good time to buy gold.
But there's a catch. Gold is a very volatile asset, and its price can swing wildly from one day to the next. So you need to be cautious and do your homework before making any decisions.
And remember, even though gold might be a safe haven during times of economic turmoil, it's still just an investment like any other. There's no guarantee that its price will go up – or even stay stable over the long-term.”
Edith Reads, Senior Editor, tradingplatforms.com
A Form of Insurance as Much as an Investment
“You can’t print gold. It is universally recognized as being valuable. On many occasions, it has also helped protect investors when there’s been a market crash. So I would view it as a form of insurance as much as an investment.”
Simon Popple, Brookvillecapital.com
The Middle of the Calendar is the Best Time to Buy Gold
“One of the most helpful expert tips, in order to attain financial stability with the hopes of achieving financial freedom, is streamlining your source of income, and one approach to reaching such is to diversify your investment portfolio.
One good investment is gold since looking back at the history of its price, it keeps increasing through time. However, with the abnormal turn of events that are catastrophically affecting all of us around the globe led by the eruption of the pandemic and the start of the Russia and Ukraine war, one may wonder if now is the best time to buy gold.
Gold, aside from being a good financial investment, also adds beauty to our presentation of ourselves which is why many are attracted to buying one. The best time of the year to buy gold is today. Commonly, on a single-year basis, the middle of the calendar is the best time to buy gold because this is historically the time when the price of gold is at the lowest.
However, if we are talking about a bigger picture than an annual-based analysis, then the excessive price increase in gold today may not be appealing to everyone. Compared to the price from two years ago, there is a disproportionate increase in the price of gold in the market driven by the many problems brought by the COVID-19 virus, as well as the incessant increase in the price of fuel and other petroleum-related products. It is best to wait for the economy and the world as a whole to restabilize before investing in gold. But if you truly want to buy as soon as possible, then there is no harm in buying now since there is still a high chance that the price will increase even more in the future.”
Franceen San Andres, Growth Manager, CocoLoan
A Wise Decision if a Financial Crisis or Recession is Imminent
“Many supporters of gold contend that it is an effective hedge against price increases. Contrarily, the evidence disproves this assertion. Gold frequently serves as a better protection against a financial disaster than it does against inflation. Gold prices typically increase during times of adversity. When there is an increase in inflation, though, this is not always the case. Purchasing gold might be a wise decision if a financial crisis or recession is imminent. It could be wise to wait if the economy is facing excessive inflation, though.
In order to sell an investment and use the money to support their lifestyle in retirement, one requires an investment that either generates current income or is expected to increase in value over time. But it would be foolish to base either of these objectives only on gold as an investment.”
Raphael Gauthier, CEO, Play To Earn Diary
Now is a Great Time to Buy Gold
“Speaking historically, now, as in this time of the year, is not a great time to buy gold. Gold normally sees its price increase by the end of the first week of January and stays high through early march, before cooling off for a period through to about mid-July. After this point, gold normally climbs for the rest of the year.
However, we aren’t living through normal times, are we? The world economy is in a great deal of turmoil, and plenty of voices are beginning to mutter quietly that a recession is around the corner. If you believe these predictions, as I do, now is a great time to buy gold regardless of the above paragraph. Gold, as a safe-haven asset, is considered amongst the most durable when weathering a financial storm. Should some of your other investments go awry, gold is a reliable fallback option for your portfolio. I know some people have begun to question this strategy, but I trust the wisdom of past generations of investors.”
Ziga Breznik, Owner & Head of Research, Public Finance International
Ensure that its Allocation Does not Exceed 10% to 15% of Your Total Investment Portfolio
“Taking into account a wide variety of macroeconomic risk factors like inflation, it's safe to say that volatility is set to continue to dominate the rest of 2022. And under the current circumstances, the outlook for gold is bullish, as it has historically proven to be an effective insurance policy against major economic and geopolitical disruption.
However, it is important to keep in mind that over the short-term, gold may not offer any substantial returns unless you are trading through commodity markets, which tends to bring a certain amount of risk. In this respect, a good rule of thumb is to ensure that its allocation does not exceed 10%–15% of your total investment portfolio, because it can be compared to buying insurance, which means that while it is a decent hedge against periods of volatility and uncertainty,it is still not as performative as stock.”
Mila Garcia, Co-founder, iPaydayLoans
Even if it is Only for Asset Allocation, it Might be Worthwhile
“An investment in gold has several advantages. It has served as a reliable investment for asset protection, to start with. Since the price of gold has frequently increased alongside general rising prices and declines in the US dollar value, it also has the capacity to act as an investment tool. In periods of economic crisis, gold has also been a sanctuary of safety. Unlike financial assets, gold is unaffected by changes in interest rates. Furthermore, the supply of gold is finite, whereas financial institutions can increase the quantity of cash by publishing more of it, which devalues exchange rates. Due to its lack of supply, gold has been able to hold onto its price over time.
Even if it is only for asset allocation, it might be worthwhile to have some publicity. Inflation in Canada, the United States, and other countries has risen to multi-decade peaks as a result of continuous supply-chain issues brought on by the COVID outbreak followed by the Russia-Ukraine war. It's exerting pressure on families and is giving central bankers a lot of trouble. The banks are beginning to initiate rate increases after decades of preserving historically low-interest rates. That might lower inflation, but it might also stifle economic expansion. The escalating hazard also poses a threat to the financial system. There is a great deal of ambiguity in the air, and gold may very well be ready to shine once more.”
Elena Jones, Founder, Financejar
Every Investor Should Have Some Gold
“There is never a good time to buy gold. Every investor should have some gold; there is never a good time to purchase it.
There is never a good time to purchase gold, but I predict that the price will reach $2,000 per ounce by the end of the year. Every investor's portfolio ought to include some gold.
Typically, I advise allocating 1% to 5% of a person's whole portfolio to gold. But now, that might increase from 5% to 15%.
Most people's portfolios still only include a minimal amount of gold. However, a slight rise of 1% to 2% might significantly impact.”
Steve Wilson, Founder, Bankdash
Economic Uncertainty Necessitates Diversification
As inflation around the world continues to increase to levels not seen in decades, many analysts assert that the economic bellwethers point to an imminent global recession. Given that fact, many investors are turning to gold for diversification in these times of economic uncertainty.
A simple way to gain exposure to gold and other precious metals is via a self-directed IRA. These types of retirement vehicles are tax-advantaged and appreciate in value on a tax-deferred or tax-free basis. As with any investment, always ensure to do your due diligence prior to making any decisions. Here are our reviews of the top precious metals IRA companies to provide better insight into this investment space.