Investing in Gold in 2022
Investments in gold offer numerous advantages. Gold investments offer diversity for your investment portfolio, safeguard you against inflation, or for portfolio growth or as income. There is no winning formula or best practice for investing in gold. There is always a risk on return profiles, liquidity considerations and corresponding fees. Read more about how to best invest in gold in 2022 below.
Analysts Say: Invest in Gold
In the unstable year of 2020 and in the years that followed, gold was one of the most durable materials. As forecast, on August 6, it peaked at $2,068 and surpassed $2,000/o.z., overtaking its earlier record high of $ 1,917.90 in 2011.
Investing in gold has been a wise investment decision in the past, as it was deemed a safe haven choice for investors and avoids the risks of the stock market, so it was not a complete shock.
Besides the turbulence of the global coronavirus pandemic, a number of events in 2020 caused widespread investment unreliability. Examples include the disputes between U.S. and China trade, recession threats, the 2020 US presidential election and surrounding events, all of which assisted the durability of the gold price.
Long-term factors are further strengthening gold’s position as a safeguarded asset, including the surging recession and straining US Dollar. A decline in the US dollar means gold prices become more reasonable for those investing in alternative currencies, as gold is usually quoted in dollars.
The growing curiosity about the best time to buy gold has sparked heightened interest in the range of investment products catering to gold investors. Prospective investors exploring gold investments have a multitude of options at their disposal, including physical gold, derivative instruments, and mining stocks. It is essential to construct your gold investment portfolio based on your specific investment objectives, as each avenue offers unique features and benefits tailored to different needs.
Here is a guide to investing in gold.
How to invest in gold
There are a number of different ways you can invest in mining gold stocks, depending on your investment objectives. These include:
- Physical gold
- Gold ETFs (exchange-traded funds)
- Gold mining stocks
- Gold mutual funds
- Gold futures contracts
- Gold royalty companies
- Gold certificates
Are gold coins a good investment? Physical gold, including gold bullion bars, gold coins like the South African Krugerrand, and jewelry, can serve as a valuable investment. Physical gold is often regarded as an excellent hedge against inflation. However, it’s important to consider the associated costs of storage and insurance when venturing into this investment.
Gold ETFs and mutual funds
Investors can buy gold investment shares that are held by a mutual fund when it comes to gold mutual funds of EFTs (Exchange-Traded Funds). These investments can take on the form of gold bullion or stocks, which is much simpler and more profitable than investing in physical gold.
Gold mining stocks
Investing in shares of a well-managed mining company with lucrative assets can generate greater investment returns compared to solely depending on fluctuations in the gold spot price.
Gold futures contracts
A gold futures contract is a contractual agreement to purchase gold at a predetermined price in the future. These contracts are utilized by inclosing investors to mitigate potential price risks associated with the metal, which offers increased support and resilience compared to trading the physical asset.
Gold royalty contracts
A gold royalty contract provides investors with shares of gold earnings in the future, as opposed to advance investment which is usually over the lifespan of a mine. The royalty company will utilize the earnings as capital for other mines in operation.
In certain European countries, Australia, and the US, a gold certificate is a financial product provided by banks to customers who are interested in investing in gold. These certificates constitute ownership of a portion of gold bullion held in a gold pool.
Is investing in gold stocks a wise choice for investment?
Gold mining stocks provide a favorable investment approach for growth-oriented investors seeking higher returns on investment (ROI). The price fluctuations in gold are often amplified in the stocks of gold mining companies, offering a unique leverage advantage not available with gold bullion investments.
Furthermore, unlike bullion investments that solely rely on gold price increases, mining companies have the potential to enhance their equity performance through strategic asset acquisitions, investments in technology to improve productivity, and effective governance and management.
Mining companies with robust environmental, social, and governance (ESG) policies also present attractive investment opportunities for ESG-focused investors. These companies have a broader scope and the potential to drive meaningful social and environmental transformations, making them compelling targets for socially responsible investing.
Where to invest: Junior, mid-tier or established miners?
Gold mining companies come in various sizes, ranging from junior micro-cap firms to major mining corporations, with a capitalization in the market of around $10 billion. This provides investors with a wide array of options to consider when investing in mining stocks and make gold miners a good investment.
Junior mining companies, which produce less than approximately 150 oz/year, tend to exhibit the highest volatility in stock price. However, they also offer a higher-risk, higher-reward investment opportunity. The mining industry requires significant capital investment for operations and expansion, making working capital crucial for survival. Junior miners face the greatest pressure in this regard. Despite the challenges, investors seeking to maximize exposure to gold often prefer junior mining stocks.
On the opposite end, major established mining companies provide greater stability in the stock market. They are better equipped to withstand potential downturns in commodity prices that can be detrimental to smaller companies. While these stocks may not experience as dramatic value fluctuations as their smaller counterparts, they usually offer lower but safer returns.
The attractiveness of mid-tier miners has witnessed a substantial increase due to their diverse investment options. These companies are strategically positioned to achieve strong production growth, making them an enticing choice for investors, especially in the gold mining industry. While major miners face the challenges of declining production and replenishing consumed reserves, mid-tier miners with strong assets are consistently boosting their gold output. This presents a promising opportunity for potential appreciation in stock prices.
How do you know whether a gold mining stock is a good investment?
While the performance of a gold mining stock is closely tied to the price of gold, the future earnings of the company also play a significant role. In addition to factors like a company’s dividend payout ratio, financial strength, and market position, prospective gold investors should thoroughly assess a company’s mining costs, management team, current mine portfolio, reserves, and exploration and development prospects for both current and new assets.
It is important to note that miners with high-quality assets and structured production systems can maintain profitability even during periods of lower gold prices.
What drives up the price of gold?
Gold is affected by supply and demand, like most commodities, and this causes the price to waver, usually due to global events.
Increased demand for gold investments is fueled by its safe haven characteristics, making it a reliable choice during periods of economic and political disruption. As the risk in stock markets rises, investors seek refuge in safe-haven assets such as gold, leading to a surge in demand that subsequently pushes up the price of the commodity. This explains why the price of gold frequently moves in the opposite direction of market or economic volatility.
Why is gold a safe haven investment?
Gold is known to be a safe haven investment because it preserves its value over time, whereas physical notes or currency-led assets can be slightly affected by political and economic disruptions. Gold is usually a stronger performer because it is less affected by these factors and often performs better and recoups faster in tumultuous periods.
Gold is also a better choice because it is not bound to any bonds, stocks or property, so it is an efficient option for investors looking to expand their portfolio.
When is the best time to invest in gold?
Investors see the benefit of the gold price when the risk of the stock market rises, so they are essentially searching for a safe haven or commodity. The gold price and mining company stocks rise in conjunction, which is why gold often excels when the market or economy fluctuates.
In 2019, gold prices outperformed a number of S&P 500 companies, having experts believing that gold’s value would continue rising in 2022.
Investing in gold in South Africa
South Africa mined over 1 000 tons of gold in 1970 and was previously the world’s leading producer, which shows just how rich Africa is in gold. Today, South Africa plays a central part in its global supply, being the 9th largest producer of gold in the world and mining over 120 tons per annum.
Looking at the future of gold mining in South Africa, there are currently more than 80 registered mining projects being developed and plenty of active mining houses, all being critical assets to the value of mining stock.
Gold is forecast to stay a dependable performer in 2020 and into the future, particularly due to rising stock market risks. Gold, as an investment choice, has taken center stage in a big way. Investors can create a powerful portfolio to meet their goals with the variety of options available, including gold bullions, exchange-traded funds (EFTs) and gold mining stocks.
Our age-old relation to gold continues to push a large worldwide demand for the precious metal. Now is an optimal time for investing.
Frequently Asked Questions
Here are the answers to the questions you might have about gold investment:
Is now a good time to invest in gold?
Yes. Investing now allows you to expand your investment portfolio while creating beneficial inflation and deflation control. The World Gold Council (WGC) states that demand for investing in gold in 2022 is forecast to remain robust and that consumption will rise with economic improvement.
Is investing in gold a good idea?
In the past, gold has kept its long-term value and can secure your investment portfolio in a market with low-risk appeal as a safeguard investment. Therefore, having a part of your investment in gold stock is a wise decision.
How do you invest in gold?
There are a number of ways to invest in gold. Investors can buy:
- Physical gold (gold jewellery; gold bullion and bars; and coins)
- Gold certificates
- Gold EFTs (exchange-traded funds)
- Gold mining stocks
- Gold mutual funds
- Gold futures contracts
- Gold royalty companies
Each has its own risk and reward profiles, liquidity demands and fees.
Can I buy shares in gold?
Yes, gold shares can be bought by investing in mining companies, either with stocks, royalties, EFTs, or mutual funds. However, elements to consider are things such as Dividend payout percentages, financial strength, cost of production and potential for expansion.
Is investing in gold smart?
Gold investment is clever because it provides protection against inflation, also known as a safe-haven or safeguard investment, and it provides your investment portfolio with a variation. The gold price has also risen 450% over the past 20 years.
How much gold is there left to be mined?
With today’s technological innovations, 54 000 tons of gold can approximately be mined. An estimated 190 000 tons, or 80% of our total reserves, have been mined up until now. Further technological advances and gold prices will affect the recovery of gold through mine tailings.
Every mine has a distinct production cost that must be sustained by the commodity price in order for the mine to generate profits. Various factors, such as ore quality, accessibility, level of mechanization, productivity, and safety, influence this cost. These considerations are crucial when making investments in mining companies.