Despite some signs of resilience, experts predict that we will be in a recession by some point later this year. Across the key markets of the UK and the US, economists believe there is still more than a 50% chance of a downturn in the coming 12 months. With inflation at 10% which is eroding purchasing power, increased interest rates and low consumer confidence, it is only a matter of time before the inevitable is declared. It is at unstable, uncertain times like this that investors often turn to gold to protect themselves against the changing economic climate. Gold has maintained its purchasing power for 5000 years and will continue to do so. In this blog we are going to ask ‘is now a good time to buy gold?’ and is it better than the alternatives?
Buying gold vs investing in property
When considering the best place to invest your money, property is often touted as the greatest solution. Bricks and mortar have long been considered a safe option and with average house prices rising 53% in the last decade, on paper, property seems like a sensible investment. That is, however, until you factor in the projected recession and current cost of living crisis. If you are looking at buy to let properties to provide a steady income then you need to be aware of the factors that can negatively impact this projection – namely:
- The recent legislation changes that have significantly reduced the potential returns buy-to-let properties offer – such as the increased tax on rental income and reduction in Capital Gains Tax allowance.
- The fact that many people now won’t be able to afford the current rental prices and thus your properties could be left unoccupied.
The stress involved with managing a property portfolio.
If you are looking for a safer and easier option to invest your wealth then gold may be the better alternative. Gold offers several advantages over property as a means of investment, including:
Gold is easier to invest in – there are no estate agents, builders and tenants to deal with. You simply choose the amount you want to invest, buy the gold bullion and have it safely stored.
Gold is a flexible asset – it is quick and simple to add to your gold portfolio or sell some of your gold assets. Raising capital from a property can be a much more complicated and long winded process.
Gold offers the ultimate wealth protection – it does not follow economic trends like the housing market does and so can provide a very stable investment during times of economic turbulence and uncertainty.
Buying gold vs stocks
If you are looking to make your money work for you and build long term wealth, you may be considering investing in stocks. There are many advantages to doing so such as the potential for higher returns and regular dividend income, however investing in stocks also comes with its drawbacks. As stock prices fluctuate frequently they are considered high risk, particularly if you plan on holding them only for a short period of time.
Gold may be a better investment alternative to stocks because it allows you to:
- Hedge against inflation – gold holds its value better and longer than other investment types which helps to protect you against the decreased purchasing power of fiat currencies.
- Minimise risk – the value of gold doesn’t fluctuate on a daily basis to the same extent as stocks and other investments. It tends to remain stable and so can help you to preserve value in your portfolio.
- Protect your wealth – as the value of gold tends to hold steady it can be a safe bet during times of economic uncertainty and rising inflation. In fact, in 75% of the stock market crashes of the last 40 years, the value of gold has increased.
Buying gold vs cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It began with the creation of Bitcoin in 2009 and since then, thousands of other cryptocurrencies have emerged. There are several options for investing in cryptocurrency, including buying and holding, trading on exchanges, mining, and staking – each with its own set of risks and potential rewards.
The biggest and most obvious difference between gold and cryptocurrency is that Bitcoin, and its alternatives, are digital currencies and only exist online. Gold, on the other hand, is a tangible asset. When you buy gold bars you have the option of storing them yourself and being able to hold them.
The second biggest difference is in the stability of these two investments. Whilst gold is generally considered a safe and stable investment, cryptocurrencies are volatile. With the worst of the crypto market sell-off behind us, currencies such as Bitcoin does seem to have stabilised and now appear to be at least loosely affected by wider market trends, but does this mean they are a good investment option?
Consider this. Since its launch, Bitcoin has been up to five times more volatile than gold. It only has a history of just over a decade, so it is too early to know if it is a useful inflation hedge. Most people who invest in cryptocurrencies do so speculatively, whereas gold investments are seen as a store of value and a means of wealth protection. Gold may not offer the high returns of cryptocurrencies but it does provide a safe haven investment.
Conclusion – is now a good time to buy gold bullion?
Having considered three possible investment alternatives it is time to decide whether today presents a good opportunity to buy gold bullion instead. Ultimately, your decision will be based on personal preference and the investment type you feel most comfortable with, however it is always worth considering what is happening in the wider world at the time.
In summary, the factors currently affecting the world’s economies such as the lingering effects of the COVID-19 pandemic, Russia’s invasion of Ukraine and higher than expected inflation in the US, UK and Europe, are all having an impact on the suitability of investment choices. Reduced household purchasing power, tighter monetary policy and slowing growth are affecting, and will continue to affect the property market, stock prices and the volatility of cryptocurrencies. With these factors in mind, gold currently offers the best route to wealth protection. The price of gold is uncorrelated to other investments, it often increases its value during times of recession and it is easy to buy and sell, increase or decrease your portfolio.
At Goldstar Global we offer simple and efficient solutions to enable you to buy, sell, trade and store gold and other precious metals. In short, we provide all the services of a Bullion Bank without the associated high fees.
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