Is Now a Good Time to Invest in Gold?

During times of economic upheaval, investors have traditionally stored their wealth in assets such as gold. Since gold is especially resistant to economic downturns, the metal acts as a great store of value and is often in high demand when investors foresee inflation or recession.

With the global economy taking a battering in recent years due to the coronavirus pandemic and the Russia-Ukraine war, most financial experts are predicting that economic conditions will deteriorate worldwide. Actions by the U.S. Fed and central banks around the world to combat inflation have only increased fears of a recession among most pundits.

In such a pessimistic atmosphere, assets such as gold should be selling like hotcakes as investors scramble to protect the value of their assets from deteriorating. However, gold has performed poorer than expected in recent months, with spot gold dropping by 7.4% this year amid increasing government bond yields and a surging greenback.

Given gold’s poor performance, many investors are probably wondering if the precious metal will continue to act as a store of value.

Quoting a recent report, Kitco’s gold columnist Jim Wyckoff noted that traders have been ramping up their gold short positions. He also said that fund managers have been more bearish on gold than they have been in the past four years.

Even so, Michael Maharrey writes that despite gold’s relatively poor performance, it is still the best-performing asset of the year. The metal outperformed foreign bonds, U.S. bonds, foreign stocks, the S&P 500, the UN Treasury Inflation-Protected Securities (TIPS) and the NASDAQ, he wrote, noting that the U.S. dollar and commodities such as agricultural goods are the only ones that managed to outperform gold.

Maharrey noted that while gold prices have dropped by more than 30% in 2022, they haven’t fallen as far as other assets. Furthermore, he stated that having gold in your portfolio may have helped to shield investors against losses in other asset classes.

The dollar, for instance, may have seen a historic rise in value, but high inflation means that the greenback, despite surging against other currencies, has been devalued. Schiffgold reported back in June that the average American household would have to spend around $5,200 more than they did last year for the same needs.

A model from the World Gold Council shows that gold prices should have gone down by around 30% due to the surging dollar and increasing interest rates. The precious metal didn’t fall that far, however. Demand for gold among central banks remains strong, and pundits predict that investors may turn to high-liquidity assets such as gold as geopolitical and recessionary risks increase.

Investors have to do their due diligence and decide whether they would prefer to invest in gold extraction companies such as Royal Gold Inc. (NASDAQ: RGLD) or put their money in physical gold and other such vehicles.

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