2021 was a busy year for gold. After a substantial climb through the early months of the pandemic in 2020, the gold price has traded above $1,900 and below $1,700 per ounce during 2021, ending the year mid-way between this range.
The outlook for 2022 will depend on macro-economic impacts including inflation which is currently surging worldwide. Investment bank Goldman Sachs has a $2000 gold forecast, Societe Generale expects $1,950 while Credit Suisse sees gold at $1,850 in 2022
A HISTORIC GLOBAL CURRENCY
Gold’s rarity and rate of discovery have led to it becoming a currency throughout the world and an ideal medium for storing of wealth.
Gold has been traded as a form of currency for thousands of years, and seventeenth-century goldsmiths were responsible for creating the banking industry as we know it today.
Central banks and countries are duty-bound to hold a certain percentage of their wealth in gold, in order to protect themselves from financial risk.
A POWERFUL ASSET FOR THE FUTURE
Buying gold is a great investment for the long term and remains the best performing asset of the 21st century, rising almost 700% since 2000*.
Central banks are buying up gold to shore up reserves, and demand remains well-balanced and on a long-term upward trajectory.
Gold investment is a safe haven asset that can protect your wealth for the future.
*Compared to UK house price index, 10-year government bonds, the FTSE 100 total return, and cash ISA interest rates.
REASONS TO INVEST IN GOLD
MARKET UNCERTAINTY
Around the world economies are being shaken by a profusion of financial, political and health crises.
Global volatility has not abated, even if the initial shocks of the pandemic have dissipated. Inflation is on the rise and new variants of the virus are causing concern again. With uncertainty still tainting the economic recovery, alongside labour shortages and some Brexit-related trade issues, protecting your assets for the future is prudent.
Physical gold has always been a safe -haven asset that tends to increase in value, as more and more people insure their wealth against financial risk.
COMPARED TO SAVINGS…
Saving accounts are currently offering under 1% interest and some may be in a precarious situation with regard to capital adequacy rules (the amount of capital a bank or financial institution is required to hold).
With inflation already over 4% and rising, and with interest rates paying as little as 1%, your money is starting to lose its purchasing power. Gold has historically hedged against inflation risk, and allowed investors to retain buying power, although past performance is not a guarantee of future results.
COMPARED TO PROPERTY…
With household and national debt at an all-time high and with inflation set to increase above 5% in 2022, there is a fear that the government will increase interest rates, making many people’s mortgage repayments more expensive.
This may result in people having to sell their properties and an oversupply of property may cause a considerable fall in its value. The UK government provided a stamp duty holiday during the pandemic to keep the property market buoyant, but these perks are no longer enticing potential purchasers into the market.
COMPARED TO BONDS…
Government bonds are viewed as risk-free but consequently, return small but steady interest. Corporate or foreign government bonds can deliver higher returns but come with commensurate risk. Since 2000 gold has substantially outperformed government bond yields. Importantly, bonds have a fixed maturity, tying your investment up in the asset until this date, whereas gold can be liquidated anytime.
TAX SAVINGS
We all have to pay tax on our income, including any gains we make on investments, such as savings, equities, bonds and property – but physical gold is an exception. When you invest in tax-free gold you can legitimately avoid paying tax on your gains, depending on individual circumstances (and this tax treatment may be subject to change in the future).
It’s a very similar product to an ISA but with no restrictions and no penalties on early liquidation. Furthermore, you are able to keep and control your investment. Many people use physical gold as an efficient form of tax planning, to minimise inheritance tax too.
GLOBAL INSTABILITY
It’s fair to say the past two years have been unprecedented. Globalised and interconnected markets have experienced intense volatility, and there has been a prolonged effect on the social, political and economic environment. Repeated lock downs, travel restrictions and draconian social measures have impacted on economic progress. Government support during the height of the pandemic has increased its debt to levels not seen since wartime, and inflation is now surging as the recovery tries to get underway in earnest.
This level of global instability is not going to dissipate quickly. There is still a long recovery to go through and it is not being helped by new strains of the virus and more travel restrictions. Safe-haven assets are still in demand because volatility remains.
Whether investing to sell or to secure your finances against potential instability, there’s never been a better time to invest in physical assets like gold.