Is Now a Good Time to Buy Gold?
Not all things that shimmer are gold. But all gold glitters. Gold is one of the most sought-after assets in the investing world, despite the precious metal not offering periodic returns like bonds or stocks. Whenever there’s economic uncertainty, rising inflation, an extended period of market lull, or a battered dollar index, most investors seek refuge in gold.
But does that mean one must buy gold only when the financial market is in turmoil or when there’s a geopolitical crisis like the Russia-Ukraine war? No, in fact, such periods of distress are the least ideal time to invest in gold. So, when should you purchase gold?
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Can you invest in gold now because you have the money and will? Or, are there specific periods when gold buying makes more sense than during other times of the year? In this article, we’ll try to answer all those questions and discuss everything to time a gold purchase correctly.
The sub-topics we’ll primarily cover include:
- The right time to buy gold
- Market activities impacting gold value during specific periods of the year
- When should you sell gold
- Investing in gold ETFs for their correlation with gold prices
If you are not an impulsive gold buyer and are keen on saving money with every investment made, read on to learn how to buy gold at its lowest prices.
When is the Right Time to Buy Gold?
The suitable time to purchase gold depends on several factors, which include the state of financial markets, personal financial condition, and investment objectives.
There’s no particular period that’s best for buying gold. Even if it was, it might not apply universally. Since market forces and sentiments drive gold prices, everyone investing in gold during a specific period will increase the precious metal’s demand and worth. Gold prices could increase or decrease based on market situations and world events. If you’re looking to buy gold, doing it when everyone’s flocking toward the precious metal is not ideal.
It’s imperative to know your investment objectives. Buying gold just because everybody else is doing it is not the way to approach things. Gold and a few other assets are excellent diversifiers of any investment portfolio. But not everybody would want to go that route. If gold doesn’t fit into your scheme of things or you believe stocks and bonds offer enough diversity already, adding gold could be redundant. In other words, no time will be suitable for such an investor to buy gold.
Gold is costly. If you need more resources to purchase gold, no price point or period will be ideal for you to buy gold. Therefore, take stock of your finances before determining a reasonable period to invest in gold.
Is Now the Right Time to Buy Gold?
As stated above, there’s no “right time” to buy gold. If you have the desire, investment foresight, and budget to back it, any time is auspicious to purchase gold. But if you are particular about the right price (which you shouldn’t be since gold stabilizes itself in the long run), specific calendar year periods could suit you better.
The first half of the year is usually eventful for gold. Early January is a good time to purchase gold. February is generally not the ideal period (more on that later). Gold prices cool down from their February highs during March and remain relatively low until early April. Mid-April, May, and early June are periods when the gold market surges. Gold enters the bear market again during mid-June and until early July.
Do note that the above inferences are based on historical gold price trends. The precious metal’s prices have followed the pattern for decades, and there’s no reason for the future to be any different. But, like everything in life, nothing is guaranteed. Varied factors affect gold prices, such as rising interest rates or a new monetary policy by the US Federal Reserve. In other words, past trends shouldn’t always be the only barometer for investing in gold.
Even though the middle months of a year have usually been cool-off periods for gold, that may change in the next year. Therefore, use the abovementioned knowledge as a starting point for your research. Consult a chief investment officer or finance expert for sound investment advice.
Gold Price Doesn’t Revert to Its Original Low
Another noteworthy point is that gold prices don’t return to the past year’s lows when they fall from a high. For instance, if the gold price was $1,750 an ounce in March 2022, the price will likely be above that threshold in the same period the next year and in the coming years. Therefore, do not postpone gold buying to subsequent years awaiting the most favorable period, as the premium metal and other precious metals will only increase in aggregate value with time. The more you postpone your purchase, the greater the opportunity cost.
Obviously, there are exceptions, or the low of a particular year can be lower than the prices in the past year or two. But the value of gold also gets restored by dramatic price increases in some years, leveling the playing field and correcting the surges and downfalls. If you hold on to gold for a few years at least, these dramatic setbacks to the value of gold shouldn’t hurt your investing savings much.
The Best Quarter to Buy Gold
The average quarterly change in the price of gold is not significant compared to monthly price deviations. However, the gold price is usually high in the third quarter (July to September).
Gold Prices Increase at Around the Start of a Year
China is among the biggest consumers of gold. And the consumption rate increases during the first couple of months, thanks to the Chinese New Year, which lasts for a few weeks between January and February. People usually are in the most festive mood during this time of the year, reflecting on China’s gold market.
Buying gold is a new year custom in China since the precious metal is viewed as a symbol of fortune or good luck. The color of gold is perceived to represent the dominance of kings and emperors throughout the country’s history. Another reason is the year-end bonuses the Chinese working class receives, boosting their purchasing power right before the new year. A higher income usually results in greater consumption of gold in China.
Gold bullion is in great demand before the beginning of the Chinese New Year to make festival-themed gold products. Gold coins are also sought after as the Chinese gift them to their family and friends during the festival season. The higher consumption means increased gold withdrawals from the SGE (Shanghai Gold Exchange) and imports. Do note that these withdrawals and imports begin a few months earlier, so there’s enough time to make consumer-ready articles of gold.
Although Chinese gold consumption or mining doesn’t dictate the prices of gold in the global market, it does have an impact. It’s, therefore, best not to buy gold during the first few months of a year, particularly if you live in the People’s Republic of China.
Gold Prices Near the End of the Year
Like the beginning of the year, the fag end of a calendar year is also filled with festivities. One of the biggest holidays in the world is Christmas, which is celebrated in different parts of the world. Although Christmas is not linked with gold purchases in the West, many people celebrate the holiday in Asia and other regions where gold is synonymous with festivities and celebrations.
Moreover, the public’s disposable income is greater at the end of the year. As a result, there’s increased clamor to buy gold, boosting the demand and price of the precious metal. If you’re not purchasing gold to celebrate the season, it’s recommended to postpone your purchase by a few months or when the market fervor subsides.
When Should You Sell Gold?
Ideally, you should not be looking to sell gold, mainly if your yellow metal holdings are within the prescribed portfolio allocation percentage. Look to sell the precious metal only if you are holding gold in excess (physical gold or otherwise) and would like to offload the same or if there’s a personal or financial emergency to address. Losing a job, medical problems, etc., are valid reasons to liquidate your gold. In such scenarios, you may sell physical gold or do away with some gold stocks or gold ETF shares.
Also, consider selling the precious metal if the gold price has hit historical numbers and you would like to benefit. But then it depends what those “high prices” are and whether the value will not continue to go up. There’s much guessing and analyzing to do, and it’s best to decide in consultation with others. Go through several investing resources or reading materials to understand the situation. If you’re still unsure, it’s best to pause the decision to sell.
Read more: 9 Mistakes When Buying Gold
Invest in Gold Price-Correlated Gold ETFs
A gold ETF is a solid choice if you’d like to buy gold for the exposure but don’t want to purchase gold in the metal. The cost of gold investing through an ETF is lower than real gold ownership, and the different ways to gain exposure to the precious metal through the ETF are broader. So, if you’re keen on purchasing the yellow metal without owning the actual commodity and are also particular about the price, an ETF is a veritable option. Like actual gold ownership, a gold ETF is a natural hedge against inflation.
But what is a gold ETF? A gold ETF is an exchange-traded fund that tracks the price of gold in real-time. Investors wanting to follow their investments live can consider investing in a gold ETF. Because the ETF is stock exchange-listed, you can trade them easily like stocks during market hours, providing increased liquidity to investors or instant access to the money put in. Because the ETFs are physical gold-backed, they are significantly low-risk compared to gold stocks, whose performance depends on the backing company’s performance and other external factors.
Do note that gold ETFs only track the market value of real gold (there are exceptions). Owning a unit of the ETF doesn’t mean actual ownership of the precious metal. The instrument lets investors get some exposure to gold through smaller investment positions compared to what one could achieve via investment in real gold and futures contracts.
How are Gold Funds or Futures Different from a Gold ETF
Gold mutual funds are invested in gold ETFs. The fund tracks the price of a gold ETF scheme’s units, which reflect real gold’s value. The fund makes or loses money based on the underlying ETF’s performance. Gold futures are exchange-traded contracts. The parties to the agreement decide the buying side will purchase the gold or underlying commodity at a price set beforehand on a specific future date.
Gold futures are pretty straightforward compared to a corresponding ETF and allow investors to purchase or sell the underlying gold when they choose to. There are zero management fees attached to them. The taxes are apportioned between long-term and short-term capital gains. Also, no third party is calling the shots on behalf of the investor. Most importantly, unlike an ETF, the investor can own the gold anytime.
But not everything is rosy with futures. Possibly, the biggest drawback of a gold futures agreement is the potential for significant losses if the gold price travels in the wrong direction.
The Best Gold ETFs
There’s no dearth of gold ETFs to invest in. But the ones listed below are some of the most reputable and trustworthy.
SPDR Gold Trust
The SPDR Gold Trust (GLD) is the first gold ETF that comes to mind when considering investing in a gold exchange-traded fund. The ETF represents vault-stored gold bullion. It allows investors to partake in gold price upsides without putting up with the inconveniences of storing, safeguarding, and insuring gold bullion or gold coins. GLD is inexpensive compared to buying gold futures or owning real gold.
Initially launched in November 2004, the ETF is technically the oldest gold ETF in America. It’s “technically” old because the second oldest American-traded ETF was launched only two months later (more on that below). GLD is the biggest gold ETF traded in America. The second most sold is not even close. The ETF boasts $56 billion in total assets. The next most traded is not worth even half that number.
The size and resulting popularity of the fund offer several benefits, such as high liquidity and narrow bid-ask spreads. GLD’s options market is significantly more robust than any conventional gold fund.
iShares Gold Trust
Conceived in January 2005, iShares Gold Trust (IAU) is second only to SPDR in credibility, popularity, and most other things. If your budget is not the greatest, IAU is a solid low-cost option to SPDR. The fees are considerably less for the fund, with assets worth close to $27 billion under management. iShares Gold Trust is similar to the IAU in structure and purpose. It, too, represents tiny fractions ofuid as GLD, and the bid-ask spreads could be tighter too. The reduced liquidity may not be fe ounces of gold.
The IAU, however, is not as liqasible for short-term investors. But if you’re in the ETF game for the long run (which you should be), the iShares ETF is worthy of your investing money.
Franklin Responsibly Sourced Gold ETF
ESG (environmental, social, and corporate governance) investing is the current buzzword. Also referred to as “impact investing” or “socially responsible investing,” ESG investing denotes investing in a firm that adheres to specific business standards. Those include how a company protects the environment; manages its relationships with its stakeholders (employees, customers, vendors, etc.); and deals with human resource aspects (leadership, executive pay, internal controls, audits, shareholder rights, etc.
The Franklin Responsibly Sourced Gold ETF (FGLD) also represents real gold. But it differentiates itself from others by considering the source of the gold. Refiners of the gold that FGLD symbolizes should have demonstrated efforts that value the environment and fight against human rights abuses, terrorist financing, and money laundering.
FGLD doesn’t have much history or pedigree compared to the above two ETFs. But the vision is correct, and if you endorse the same, invest in the ETF. The costs are pretty competitive, with 0.15 percent charged as yearly fees.
VanEck Vectors Gold Miners ETF
If you’ve got a greater appetite for risk or don’t mind exposure of your funds to gold stocks, look at VanEck Vectors Gold Miners ETF. It is arguably the biggest ETF focusing on holding the shares of crucial gold stocks. Some gold mining firms the gold ETF owns shares of include Newmont, Barrick Gold, Franco-Nevada, Newcrest Mining, and Wheaton Precious Metals. The market caps of the companies range from $47 billion to $15.5 billion. Newmont makes up more than 15 percent of gold ETF’s assets.
In case you didn’t know, gold mining stocks can easily outperform gold prices since they stand to benefit from both the rising cost of gold and mining activities or the increased production of gold. But, as mentioned above, holding money in stocks is riskier than pegging cash to the actual metal’s performance, even if it’s gold company stock. Besides the company’s performance, factors such as high inflation or increasing wages and raw material costs bumping up the end product’s price could lead to underperformance.
VanEck Vectors Junior Gold Miners ETF
If you don’t mind exposing your funds to shares of mining firms, but want those companies to be relatively new and fledgling or exploration-stage firms that can expand their production quicker and not be bogged by the sheer scale of their business, look to investing in VanEck Vectors Junior Gold Miners ETF. But since the firms are smaller miners, there’s more risk too.
Some companies under its wing include Pan American Silver, Evolution Mining, Yamana Gold, First Majestic Silver, and Endeavor Mining. The biggest holding company’s market cap is $6.2 billion, significantly lower than the lowest $15.5 billion market cap holding of the standard VanEck Vectors ETF.
Read more: Getting Started With Gold ETFs
Gold cannot be printed or reproduced. It’s a non-fungible asset. And because it’s non-corrosive and pliable, it can be reused infinite times. Therefore, it’s not difficult to understand why anybody would want some gold in their kitty for a reasonable price. But it’s also critical to understand that gold is not only glitter. A few drawbacks must be considered, especially when ascertaining the amount of gold you’d like to invest in.
Gold doesn’t offer dividends or interest payments. Although relatively stable, it goes up and down in value. The price may not dip as vehemently as a penny stock, but gold prices will not go through the roof within days. If it does, it will come down and stabilize quickly.
Long story short, don’t view gold as the be-all, end-all asset. Even if you can buy gold at a relatively lower price, do not buy excessive amounts of it. No more than 5 to 10 percent of your financial portfolio should be gold. Treat the precious metal as a safety net and not as a growth asset. If you look at it that way, no price will be too high.
Do wars and global economic collapse affect the price of gold?
Yes, a war-like scenario or a worldwide financial calamity can positively affect the value of gold. But it doesn’t impact prices as much as the cost of food, water, and other essential items. When in dire straits, there’s increased demand for food, clothing, and shelter. Gold is a good-to-have value store, but it’s not liquid enough to help during emergencies.
Long story short, dystopian times drive the prices of gold, but the precious metal isn’t the only valuable commodity to appreciate. Moreover, several other factors are involved. Gold attained a rate of $2,074.88 an ounce (an all-time high) in August 2020. The price went above $2,000 again in March 2022 after Russia invaded Ukraine. But the all-time high is still $2,075, proving multiple determinants exist.
Should you buy gold before a financial or global crisis?
Investing in gold before a stock market crash, a pandemic, or war is ideal because gold prices will likely increase during those periods. But predicting such scenarios and stocking up on gold beforehand is difficult. The pandemic ravaged the world, but not many saw it coming. Similarly, Russia and Ukraine have had a sour relationship for many years. Still, few expected a Russia-Ukraine war or thought the situation would escalate to a violent brawl.
Will staying updated with the news and trends help time gold purchases?
Reading the news, combing through journals and articles, or being updated on what’s happening worldwide is an effective way to stay in touch with reality. For instance, if you read the World Gold Council (WGC) publications, you’d be in a much better position to time your gold purchase than someone relying solely on historical data.
For those unaware, the WGC is an authority on all matters pertaining to gold and the part the precious metal plays in investment portfolios and financial markets. The non-profit entity has more than a good track record tracking and evaluating gold and the gold market’s demand and supply dynamics. The organization also researches topics related to gold and offers guidance and insights to governments, investors, and central banks across the globe.
How to buy gold for cheap?
There’s no inexpensive gold. But since you can buy gold in different sizes and forms, you can score some gold products for cheap than others. Physical gold usually has high sales costs. There’s also the need to trust a seller regarding gold purity. Consider investing in gold mining stocks if you’re not hell-bent on owning real gold. Gold ETFs (exchange-traded funds) and mutual funds are other ways to procure gold cheaply than buying gold in the metal.
Should you buy gold to hedge against inflation?
Although gold is an effective tool against price rises, it’s not always the case. In other words, the gold-inflation relationship is not straightforward or consistent. Inflation, however, is still one of the better times during any financial year to invest in gold.
Inflation is a phenomenon caused due to money supply increase or a reduction in goods and services supply. When that occurs, a currency’s purchasing power decreases. People usually buy more gold than usual during such periods, causing the gold price to go up. But if the government has other plans or tweaks the monetary system to strengthen the US dollar, gold demand won’t be as high. A strong dollar can cause the gold price to decrease even during inflation.
Long story short, gold is an effective inflation hedge but not in all circumstances. In specific scenarios, the price of gold will not increase with the costs of other goods in the commodity markets for the abovementioned reasons. Gold prices will likely go up more during a war than during inflation. But that again is not a given, as explained earlier.
Is paper gold a better investment than buying the actual metal?
The answer to the question depends on your personal preferences and investment objectives. For the uninitiated, paper gold (virtual gold) is any form of gold holdings not amounting to physical ownership of the precious metal. Gold ETFs, mutual funds, and futures are virtual gold owned through certificates or futures contracts.
Many investors prefer gold on paper due to the increased convenience and cost-effectiveness of the same. However, several investors like to possess an actual piece of gold, even if that means spending more. The expenses attached to owning physical gold include transportation, storage, and insurance fees. But real gold ownership doesn’t present counterparty risks that stem from dependence on financial institutions.
Ultimately, it comes down to weighing the pros and cons of both forms of gold ownership and deciding between them. If gaining exposure to the gold market is your sole objective, stocks and gold futures should fit the bill. But if owning an actual piece of gold is paramount, absolute gold ownership is the better route. Do note that you can pick either or hold some gold on paper and in real life. You are free to decide the ratio. Just ensure the two forms of gold ownership together do not exceed or come close to 10 percent of all your investments in gold.
Should you buy gold when you’re young?
Gold ownership is usually associated with the old or folks who don’t have the appetite for the high volatility of stocks. That, however, doesn’t imply young investors must steer clear of gold. Like mentioned above, any investment or savings portfolio must have some form of gold ownership. It doesn’t matter whether the investor is young or old. And because gold should be invested in for the long term, starting young makes complete sense.
Is gold an “income investment?”
Gold is not an income-generating investment, unlike bonds and stocks. The return on the precious metal is based wholly on price or capital appreciation. Income investors should, therefore, steer clear of gold if generating a steady stream of income through investments is the primary goal. When you buy gold and at what price will not matter. However, if you go the gold stocks route, there’s income potential and exposure to the gold market.