Gold has risen 16% since the beginning of October due to the war, and more is expected with the reduction in interest rates
Many investors believe that the gold market is currently witnessing feverish activity, after the prices of the precious metal touched a record high in the middle of today’s trading when an ounce recorded $2,135.39. Gold is considered a safe haven, as it tends to perform better as world conditions become more turbulent.
Gold prices have risen nearly 16% since early October, a surge initially sparked by Israel's war on the Gaza Strip. However, they have since become driven by bets that the Federal Reserve will shift to an expansionary monetary policy early next year.
Is it the right time for individual investors to start investing their money in gold? Or is it better for your investment and exposure to the risks of this market to be limited to the gold holdings you actually have?
Why are gold prices rising?
In August 2020, gold prices hit a record high of $2,075.47 per ounce, when the pandemic caused a surge in demand for safe-haven commodities. As for the current increase in prices, it is due to the escalation of geopolitical risks and traders’ strong bets on reducing interest rates starting in March of next year.
Federal Reserve Chairman Jerome Powell said last week that the key interest rate is currently in a highly austere zone, which markets interpret as a highly accommodative statement. Usually, lower borrowing costs positively affect the value of gold, which does not earn any interest.
Powell: It is too early to predict when interest rates will be cut
In India, the second largest consumer of gold after China, prices of the metal rose to a new record in local currency terms in November.
Why would you buy gold now?
Gold market conditions currently appear supportive of a rise in its prices in 2024, driven by the direction of interest rates at the Federal Reserve and increasing geopolitical and economic risks, according to statements by Sony Kumari, a commodity markets expert at ANZ Banking Group.
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“Moreover, the central bank’s purchases of gold will support gold prices next year and can offset any weakness in real demand,” Kumari asserts.
Gold has a rich cultural history across Asia that goes beyond simply being a symbol of wealth. Collectively, the Indian private sector owns a higher amount of gold than the private sector in any other country in the world, and this metal plays a pivotal role in religious rituals, in addition to being a useful and practical investment that can be carried and moved.
“Gold is a long-term investment asset and has value across generations for Asians,” says BR Somasundaram, regional CEO for India at the World Gold Council.
May major gold enthusiasts also consider it a protection against the collapse of official paper currencies.
How can you buy gold?
ETFs for investing in gold are a major option for institutional investors and individual investors. It is what investors demand and seek to a greater degree in Europe and North America, which together constitute about 95% of the world's total holdings by volume.
Other outlets for investment include online brokerage platforms - which buy and sell bullion and hold it in vaults for their clients - and gold-backed stablecoins, a type of cryptocurrency whose prices move in keeping with the price movement of the metal.
In some locations, such as Hong Kong, consumers have the option to invest in gold accounts at banks, where they can choose to keep a portion of their savings in the local currency or in gold.
Gold mining companies' shares are usually strongly linked to the prices of the metal, which presents them as another alternative for investors who wish to do so. However, shares of gold companies are also linked to the performance of stock markets, and their value varies based on their basic financial indicators.
Visiting your nearest jewelry store is a simple way to add gold to your investment portfolio by purchasing necklaces, rings, or gold coins. In countries like China and India, most gold purchases are for weddings. As for shoppers in Thailand and Vietnam, they prefer to buy coins and bullion.
What should you pay attention to when buying gold?
Those who buy gold should monitor its purity and quality. “This is clearly the easiest trap for investors to fall into just to get the metal at a cheaper price or without a purchase invoice in order to avoid paying taxes,” says Somasundaram.
Consumers should buy gold from a reputable seller – whether it is a jewelry store or a digital platform – as fraud and counterfeiting spread quickly when the price of an investment asset rises.
Those who purchase gold in the form of bullion, coins or ornaments may experience price increases over published spot prices that cannot always be recouped upon resale.
“People who buy gold have to hop between several stores when buying and selling in search of the best one,” says Adrian Ash, head of research at brokerage BullionVault.
How do you evaluate the quality of gold?
For individual investors, the easiest way is to evaluate the purity of the metal on a carat basis. Almost all of the alloys are investment grade with a purity of 24 karat – the highest purity of the metal – with other metals making up less than 1% of the total mass.
Lower purity gold is usually used in jewelry, because 24-karat gold is much weaker when used for practical purposes. In Asia, where this gold is considered an investment, most of its products are made in grades 18 karat and higher – with a purity of at least 75%.
Different countries around the world set acceptable minimum standards for gold purity. In the United States, the legal minimum is 10 carats, while in France, the United Kingdom, Australia, Portugal and Ireland this minimum is 9 carats.
Gold bars minted by accredited laboratories such as the London Bullion Market Association are the most valuable, with companies required to undergo annual audits to verify their adherence to purity and provenance standards. It has other markets,
Among them, Istanbul and Dubai have similar rules and standards.