Is gold a good investment in the long term? | Kinesis Money (2024)

Gold has historically symbolised prestige and luxury, with ownership of the asset conveying status and wealth.

It still holds cultural significance today in many countries, largely India and China, where it is gifted by families at times of betrothal, marriage and birth.

To this day, gold remains a go-to asset in times of uncertainty.

Gold Performance Against the Stock Market

These connotations are not unfounded. Looking back just over the past ten years it’s evident that as a fundamental investment vehicle, it still holds weight.

Clearly, gold price peaks and troughs are more pronounced than in the 1960s when it was priced in two-digit figures.Uncertainty in the stock market and fears of economic crisis can cause the value of gold to rise. In Q1 of 2023, the value of gold increased by 9.2% to $1,980 USD per ounce. The collapse of the Silicon Valley bank in March 2023 and geopolitical tensions played a big part in this outcome.

having bucked the trend of the US dollar currency’s strength, from a low in the past 10 years of $1,049 per ounce in November 2015, according to the World Gold Council.

Yet, despite the peaks and troughs, gold is still a relatively safe investment hedge against inflation, with an overall balanced portfolio of stocks, to weather the storms of undulating stock market indices’ movements.

Gold Outlook Over the Next 10 Years

A Hedge Against Uncertainty

Surely, few could have predicted the uncertainty surrounding the Covid-19 pandemic, which only began to ease in the first quarter of 2021, would see gold demand recover reach 4,021 tonnes – excluding over-the-counter (OTC) markets – according to the World Gold Council.

In the next 10 years uncertainty is likely to remain a hallmark and hence gold will likely continue to be a good investment when people and governments fear the worst, but always as part of a wider portfolio.

Higher gold prices may be prompted by fears of further pandemics in the future. The Omicron and sub-variant BA.2 added another element of worry with consumers buying again to hedge against the unforeseen.

Macroeconomic Pressures

Furthermore, the gold price may be influenced by inflationary pressures, economic recessions, or stock market dives, all presenting further upside risks in the next decade. Nations at war may further derail economies and fuel gold price projections up again.

Inflation is an example of macroeconomic pressure that gold investors will want to pay attention to. Historically, investors see gold as a hedge against inflation. That is because gold and the US dollar typically are inversely correlated, meaning that when the US dollar index increases, gold prices decline. So gold prices rise when inflation causes the US dollar to lose value. In 2022, US inflation reached 7% for the first time since 1982. As inflation remains high, digital and physical gold stands out as a particularly attractive investment.

Long-term geopolitical issues will also determine economic sentiment and influence consumers’ decisions on whether to keep private assets or hold – this is yet unclear. The Russia-Ukraine war and the implications of China’s position is a case in point.

For private wealth, the alternatives are for assets to be locked away in bank vaults, in safes at home or kept in the investment sector in gold-backed exchange-traded funds (ETFs).

An alternative, which offers an attractive interactive element to buying physical gold, is in its digitalisation into blockchain as cryptocurrencies, such as the precious metals-backed currencies offered by Kinesis. This can be a transparent, proven record to potentially hedge the price of gold against any future variants.

Future Demand

In terms of the demand for gold, there will likely be an increased industrial requirement in the coming 10 years in order to serve smart city infrastructure, aerospace applications such as satellite technology, and medicine.

Demand from the electronics sector bounced back in 2021 by 9% year-on-year to 220 tonnes. More advanced electronic devices and electric vehicles are gaining traction, and the consequent expansion of 5G infrastructure and automation devices will be a theme going forward spurring gold demand.

Is gold still a good investment in 2023?

So, where does that leave investors now who are projecting for the next 10 years? And is gold a good investment in the long term?

Gold can be kept as insurance for times of trouble in its physical form of either gold coins or bullion. This will remain a hedge for the occurrence of need when the pot of gold might have to be used or later replenished in times of abundance. This is unlikely to change due to the cultural basis of its accumulation by consumers in the retail sector.

Recent renewed interest from central banks saw purchases rise by 82% in 2021 to 463 tonnes, lifting global reserves to 35,600 tonnes – a near 30-year high, according to the IMF. In 2023, central bank gold buying broke records. In Q1, central bank gold demand reached 228 tonnes which was 34% higher than the previous Q1 record set in 2013.

India added 77 tonnes to its gold reserve in 2021, the biggest increase since 2009 at 200 tonnes from the IMF. Notably, Thailand, Hungary, Uzbekistan, and Kazakhstan also significantly increased their gold reserves.

Jewellery fabrication was a testament to consumer sentiment when demand boomed in 2021 after Covid, when demand grew by 67% year-on-year to 2,221 tonnes, according to the World Gold Council. This was the highest rise seen since 2018, satisfying the global need for jewellery, with demand in India and China largely fuelling this demand in the fourth quarter.

Clearly gold remains important, both culturally, or as a hedge against uncertainty, despite the current economic recovery and steady price lifts.

History suggests that gold will remain a reliable safe-haven asset in 2022. But how it is held, whether as physical, paper or digital currency, may see some radical changes going forward in the next 10 years.

The start of 2023 looked promising for gold investors. As expected, market uncertainty and geopolitical tensions continued into the new year, which helped the price of gold rise. As markets dropped due to worries about the financial sector, the value of gold increased by 9.2% to USD 1,980 per ounce in Q1 of 2023.

Investing in digital gold is a great option for diversifying your portfolio and building wealth. Many gold investors opt to divide their holdings between digital and physical gold. Invest in gold today with Kinesis.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.