The year 2022 proved disappointing for many investors. It was fraught with numerous sharp falls in the price of investment gold. In contrast, what is the outlook for 2023? Will buying investment gold be profitable? Welcome to today's post, in which we will lean into this topic. We'll also suggest how to get started investing in gold to protect your capital against difficult times.
Gold decline - a summary of the precious metals market in 2022
As mentioned earlier, 2022 was not a particularly successful year for many investors. The start was certainly impressive, helped by the Russian invasion of Ukraine that took place in February. At the beginning of March, the price per ounce of investment gold exceeded PLN 9,000. By the end of November, however, the precious metal funds' output had reached minus 10.5%. At that time, the price of an ounce of the royal bullion was just under PLN 7800. Compared to the bond market (where single-digit falls were recorded), investment in gold began to yield large losses. Such large declines in the bullion market had not been recorded since 2013. At that time, the gold price lost as much as 28.88% in value.
A number of different factors are actually responsible for the sharp falls in the price of investment gold in 2022. Among other things, many investors chose to exchange this bullion for US dollars. June 2022 marked the peak of inflation in the United States of America, namely 9.1 per cent. The Federal Reserve System then decided to raise interest rates in order to combat rising prices. This treatment strengthened the US dollar considerably, making many people decide to buy it. The growing interest in this currency meant that demand for investment gold decreased significantly. This, in turn, translated into sharp falls. Of course, this was an opportunity to buy this bullion at a very attractive price, but nothing heralded a recovery. In addition, the investment gold market was still suffering from the effects of the crisis caused by the COVID-19 pandemic. The political situation in Ukraine, which led to an increase in fuel, energy and food prices, also contributed its share. Many people therefore preferred not to invest in precious metals in order to be able to withdraw their money quickly in case of emergency.
Gold investment vs inflation - is it worth buying gold in 2023?
But how does the topic of investing in investment gold look in 2023? Certainly much better than this time last year. It is worth noting that the rate increase is mainly influenced by the fear of recession in the previously mentioned United States, as well as in other countries - including Poland. In addition, rising inflation in many other countries means that more and more people are choosing to invest in investment gold to secure capital. Already at the beginning of January, the price per ounce exceeded PLN 8,000 to reach an impressive PLN 8,400 by mid-January. Since then, prices have not fallen below PLN 8000, fluctuating between PLN 8100 and PLN 8300. According to the forecast made by the World Gold Council, investment gold will only get stronger. In the worst case scenario - i.e. the occurrence of stagflation - analysts predict a rapid recovery in the price of this bullion. These forecasts are based on historical observations. To date, investment gold has not failed in the event of a recession. This allows positive forecasts to be made. Gold retains its value regardless of how the global political situation presents itself.
The current global political situation - the previously mentioned recession in the US, the weakening dollar, the escalating Russian-Ukrainian conflict, galloping inflation - will encourage more and more people to invest. Market analysts therefore predict that 2023 could be the year to invest in investment gold. This is the right time to start taking an interest in this bullion. After all, gold is an excellent way to multiply one's savings, which is able to retain its value even in extremely difficult times.
How do you start buying gold and investing capital in it?
It is already known that it is definitely worth investing in gold in 2023. The beginning of the year is the right time to take a serious interest in this topic. But how to go about it? After all, making a decision is one thing - finding the right opportunity is quite another. So how do you invest in gold to make sure your money is invested properly?
Investing in investment gold requires a proper plan. It's definitely a bad idea to buy the first gold bar that you'll store between folded T-shirts in a drawer. It is also not a good idea to invest in gold and silver on impulse, e.g. after talking to someone who has successfully cashed in bullion or reading a news story on the Internet. Investing your savings in gold is a decision that should be taken coldly, after a thorough analysis of the pros and cons.
It is worth starting by recalculating your savings. To start with, it is worth putting a certain amount of it in investment gold. It is necessary to set yourself one specific amount which you want to invest. For example: if your savings amount to PLN 20,000, at the very beginning it is worth placing only half of this amount in gold, i.e. PLN 10,000. The rest can be invested in something else - e.g. government bonds, shares - or kept in a savings account. Although cash does not increase in value - on the contrary, it loses value as inflation rises - it is definitely worth keeping it on hand just in case, so that you can withdraw it at any time. This is because it is worth bearing in mind that the return from investment gold may not materialise until several years after purchase. That is why it is a good idea to have some savings on hand so that you can put them into something else if you need to, without having to sell bullion when the exchange rate is weaker. As investors often say: ‘it's not worth keeping all your eggs in one basket’.
Diversifying your investment portfolio is a great way to grow it. It is also worth giving other ways to increase savings a chance. Whatever an investor decides on, he or she must remember one thing - investment decisions are always made calmly and without haste.
Gold bullion coins - or physical gold for beginners
Physical gold comes in the form of coins or bars. There is also, of course, jewellery, but this is not recommended for investment purposes. This is because the price of products made from gold includes not only the value of the bullion, but also the cost of production, design and the margins of the showroom where it is sold. Gold in the form of jewellery is therefore bought more expensively in order to sell it more cheaply.
Many novice investors opt for gold investment coins. This is mainly supported by the fact that their purchase is much safer. To make sure that the coin you are buying is an original product, it is enough to read the manufacturer's specifications. In it, the mint provides, among other things, the exact dimensions of the product and describes all the anti-counterfeiting features applied. It is worth remembering that collector coins and investment coins are not the same thing. The former gain value over time, which is often also dependent on trends. Collector's pieces are also often counterfeited. The price of gold investment coins, on the other hand, is entirely dependent on the value of the bullion from which they are made. Thus, they do not lose value when the trend for a particular numismatic coin decreases.
As for the bullion content, there are gold investment coins available on the market for every pocket. You can find both 2g and 1kg numismats in mints and investment metal showrooms. However, it is definitely more cost-effective to buy one-ounce gold coins. Why? Numismats with a lower gold content are often unprofitable for investors. This is because the cost of producing them is much higher. On the other hand, gold investment coins with a higher weight and bullion content are very expensive, which does not encourage investors to buy them. Their subsequent resale may prove to be a difficult task in the future. Single-ounce gold coins, on the other hand, are a versatile, timeless investment. The aesthetic value of numismatic coins is also worth considering. On the market, there are gold investment coins from various countries, the reverses of which depict, among other things, scenes from various historical events, characteristic animals or pop culture icons.
What are the best gold coins to invest in? Certainly in the timeless classics, which include the Australian Kangaroo, Vienna Philharmonic, Krugerrand, Chinese Panda and Britannia. However, other lesser-known investment numismatic collections are worth checking out. Owning physical gold in coin form allows you to create beautiful, impressive collections.
Gold bars - a cheaper alternative to bullion coins
On the other side of the investment barricade, however, are bars. They are usually cheaper than gold investment coins - here there is no need to add additional production costs and a designer's fee. However, it is worth bearing in mind that in the precious metal bar market it is very easy to get scammed. We mentioned more about this in our post on where to buy physical bullion safely. So when it comes to investment gold bars, you should be as careful as possible and make sure that the bullion you buy is genuine and not counterfeit, e.g. by being filled with tungsten bars or covered with patina.
Which company's gold bars should you buy to make sure the money you spend is safely invested? Top manufacturers include Valcambi, Umicore, The Perth Mint Australia and Royal Canadian Mint, among others. To be sure that the investment gold you purchase is genuine, it is advisable to buy directly from the producers. If this is beyond an investor's means, there is always the option of using the mint.
Deciding which physical form of investment gold is worth choosing is entirely up to the investor. Beginners are strongly recommended to buy coins, whose authenticity is easier to verify. However, if someone wants to invest in bars, they should look for them in the offer of authorised distributors.
Not just physical gold - is it worth investing in gold futures?
You can invest in precious metals not only by purchasing a coin or bar. An alternative to physical bullion are gold futures contracts. These are various financial instruments that give the investor exposure to the price of the bullion. Is this an attractive alternative to investing in physical gold? It certainly is, but it carries considerable risk.
The market for paper investment metals is open to any investor. Buying them is much simpler and faster than gold in bar or coin form. Transactions are made online at home, without having to leave the house. However, it is worth bearing in mind that a futures contract is only partially covered by real bullion. What does this mean for the investor? In a situation where he or she would like to exchange the contact for physical investment gold, there may not be enough stock. Precious metals cannot be artificially produced, which may force the investor to wait in the hope that the favourable rate will not change.
Buying paper gold appears to be an attractive option for novice investors due to the simplicity and speed of this solution. However, it is worth bearing in mind that paper remains only paper and is no substitute for physical bullion. It is a rather risky form of capital investment that only experienced investors should consider. For those taking their first steps into the world of precious metals, investing in physical gold is strongly recommended.
Securing physical gold - or how to store investment gold?
Any form of investment gold requires proper storage. Many investors choose to keep bullion within their four walls. However, it is worth bearing in mind a few things that will give any investment gold holder peace of mind.
A safe or an armoured drawer will certainly prove to be a necessary purchase. They allow you to store your bullion safely without the risk of theft. Investment gold should certainly not be stored in ordinary furniture. This is because the metal is quite fragile and therefore easily damaged - especially if it is not enclosed in a security cap or certipack. If an investor is not too comfortable with keeping such valuable items at home, it is worth thinking about using the services of a bank. Renting a bank safe deposit box is the most common way to store investment gold. Each bank offers different prices, but typically costs range between £200 and £600 per year. Many investors are concerned about a situation where a third party might find out that they own physical gold. However, it is important to remember that the client is not obliged to tell a member of staff at the facility what they intend to store in the safe deposit box. Storing investment gold in a bank is a suitable solution for people who do not have the conditions to keep bullion at home.
Investment gold can also be stored in the vaults of commercial companies, such as self-service vaults. However, it is worth bearing in mind that private facilities often operate under contracts that are quite strict for unreliable customers. For example, if a client fails to pay their vault on time, the investment gold in the vault may end up in court deposit or auction. It is therefore worth reading the contract carefully before signing it.