2022 is right around the corner and it brings back an important question. Is gold a good investment in 2022? However, the answer is not as simple as the question. Is the investment long-term or short-term? What is the investment amount? Since gold has historically been a significant fixed asset across economic denominations, it easily comes up as the top choice for asset investment.
The History of Gold Investment
The use of gold as a trading instrument dates back to almost 4000 BC. Back then it was mostly used as a bartering tool. Historically, gold held a high trading and asset value in all the large civilizations beginning from the Egyptian to the Roman empire.
The first minted gold coin dates back to 500 BC under the rule of King Darius I of Persia. Over the years, regulations and acts saw gold become a significant tangible asset. In addition to offering significant value storage, there are some other benefits associated with gold that make it an investment haven for many.
Why Should Someone Invest in Gold?
The main reason to invest in gold is because of the safety it provides. Risk-averse investors tend to look for three key things – rewards, liquidity, and safety. Historically gold has been a go-to option considering the high liquidity value and price fixations. In recent years, the reward system from gold is also catching up with the other two because of newer investment options.
To answer why should someone invest in gold? One needs to look at two market-related factors:
– Gold always outperforms inflation. Regardless of the inflation condition, the tangible value of gold remains almost unchanged thanks to its international valuation as a reserve determinant.
– Gold investment is inversely proportional to any form of equity investment. Meaning every time the stock market goes down, the price of gold goes up. So, for anyone looking to play safe on their investment, gold can be an ideal choice. Having a mix of gold investments on the portfolio will help to maintain some ground even if the overall investment goes down through equities. Gold can act as a good buffer for investment.
Before getting into the details of the investment, it is important to see the trend of investment performance over the years. And a good indicator for that is the price fluctuation of gold. Here is a comparative chart outlining gold prices per ounce over the last decade.
Table: Overview of Gold Price (Per Ounce) in 10 Years
It is clear from the table that the price of gold didn’t fluctuate much over the decade. Even though it has seen some dips and highs, the general trend has been on the rise over the years leading to an overall gross increment of over 185 dollars or 15,910 BDT per ounce over the last decade.
This confirms the denomination that gold is a stable and secure investment option. The ROI might not be as high as other investment opportunities, but the associated risk with investment is near zero in the long run.
How to Invest in Gold?
Now to the all-important question – how to invest in gold if it is such a haven? Even a few decades back, the only way to invest in gold was to buy gold in grams or ounces and save it for later usage. Some people even received gold as an inheritance and it continued as a form of implicit investment. But those forms of investments are backdated and susceptible to damage. For example, gold getting stolen. Nowadays there are advanced options to invest in gold.
Think of this as a blockchain technology of cryptocurrency. Except instead of crypto, there is gold. Even though the name suggests it to be virtual, the investment is done on actual real gold.
Different firms including banks now accept direct investment in gold. This allows investment without having to physically own gold, thus bypassing the security issues.
Firms and banks allow direct transactions including buying, selling, and transferring gold.
This form of gold investment works as a tangible asset for the investor. The most common form of gold investment in the context of Bangladesh is jewelry. Gold coins or bullions might be popular in European countries, but gold investment in the context of Southeast Asia is associated mostly as a cultural part passed from generation to generation.
Gold Mutual Funds
This works on the same principle of MF investment except the brokerage house accepts investment in gold as well. This is similar to the portfolio management scheme mentioned earlier where gold acts as a buffer against the overall investment portfolio.
Gold Exchange Traded Funds
ETF works just like any other stock trading. Except instead of stocks, the underlying asset here is gold. Owning a substantial amount of gold requires a considerable amount of investment upfront, which is often difficult for many. The ETF system allows the trading of gold on a stock basis. The price won’t exactly replicate the market. However, it is very close to the actual price and the traders stand to gain in the long run.
Pros of Investing in Gold
With reasons and methods of investing in gold aside, let’s look at some of the pros of investing in gold.
-It’s a secure long-term asset investment that is guaranteed to fluctuate the least compared to other fixed or tangible assets.
-The tangibility of gold as precious metal makes it a perfect hedge product against inflation. As the buying power of a currency falls, the price of gold goes up.
-The demand for gold is always high on the market. As a result, it has very high liquidity.
-It helps to diversify an investment portfolio.
Cons of Investing in Gold
– Requires a high initial capital investment if an investor plans to hold it as a fixed asset.
– Requires specialized storage medium
– The speculation of supply-demand nature. Though highly unlikely, it is determined by the market forces which might negatively impact an investor in the long run.
With all being said, gold is undoubtedly a great long-term investment choice. It is a win-win scenario for the investor if they plan to hold it as a fixed asset in the long run. However, since pro
Source: United News of Bangladesh