With economic and geopolitical uncertainty on the rise, many investors are considering adding physical gold to their portfolios as a hedge. But is buying gold coins, bars, or jewelry a wise move for 2024 and beyond? This comprehensive guide examines the pros and cons of investing in physical gold, outlooks for the gold price, and sensible strategies for those looking to precious metals.
What Drives Gold Prices?
Before predicting future gold prices, it’s essential to understand the key factors that impact this commodity:
Inflation and Real Interest Rates – Gold is seen as a hedge against inflation. Rising consumer prices often prompt investors to park money in gold. Real interest rates also play a role. Gold becomes more attractive when real rates turn negative.
US Dollar – There is typically an inverse relationship between the dollar and gold, meaning gold rises when the greenback weakens due to expansionary Fed policy or economic troubles.
Geopolitics – Conflict and uncertainty (e.g. tensions with Russia, China, Iran) tend to lift gold’s safe haven appeal.
Physical Investment Demand – Outlooks for inflation/economic growth drive retail appetite for bars and coins. When consumers buy more gold it supports prices.
ETFs and Central Bank Buying – Purchases of gold bars and coins through Electronically Traded Funds (ETFs) and central bank accumulation also impact demand.
Technical Trading Factors – Momentum, chart patterns, volatility etc. can ignite or curtail speculative flows in and out of gold derivatives.
Gold Price Forecasts
Analyst gold price predictions for 2023-2025 vary widely from $1,400/oz on the low-end up to $3,000+/oz on the high-end:
- Citi (2023): $2,300
- Bank of America (2023): $3,000
- Morgan Stanley(2025): $2,500
- Capital Economics: $1,500 by end of 2023
- Natixis: $1,400 – $1,550 through 2023
The huge forecast range underscores the uncertainty around how key drivers will play out. Some of the more bullish calls rely on assumptions around persistently high inflation, terminal Fed rate hikes under 5%, and ongoing safe haven inflows. The bearish outlooks expect inflation to moderate, interest rates to restrict growth, and investment demand to fade.
The Case For Buying Gold Now
Here are the bull arguments for adding physical gold exposure leading up to 2024:
Inflation Hedge – High inflation could be more drawn out than forecast if factors like energy shocks, geopolitics, and de-globalization pressure prices. Gold stands to benefit if these drivers manifest.
Dollar Decline – The soaring dollar may finally peak then decline if foreign economies perk up and the Fed wraps up tightening. This dollar reversal would lift gold.
Buying Opportunity – At under $1,800, gold looks attractively priced for long-term investors compared to 2020’s peak above $2,050. Dollar cost averaging can mitigate timing risks.
Portfolio Insurance – A modest 2-10% allocation helps buffer stocks/bonds during periods of elevated volatility like looming recessions. This insurance-like quality supports demand.
Central Bank Buying – As economic uncertainty rises, central banks may continue adding bullion to reserves – supporting prices.
Geopolitical Tensions – Conflict risk around Taiwan, Iran, North Korea, Ukraine etc. persists. Military incidents could spark haven buying.
READ ALSO: Top Gold Investment Tips for 2024
Reasons To Delay Gold Purchases
On the other hand, here are the reasons why waiting could pay off:
Rates Will Rise Further – Markets may still underestimate how high the Fed will boost rates to tame inflation – hitting growth and gold demand.
Recession Looms – An economic downturn will hamper retail investment interest in precious metals like gold bars and coins.
Strong Dollar – If the US dollar remains elevated due to foreign economic weakness, it will continue weighing on dollar-priced gold.
Subdued Inflation – Markets may overestimate inflation risks if supply chain pressures ease, commodities decline, and global growth slows.
Technical Resistance – Repeated failure to sustainably break $1,800 and march towards $2,000 could signal fading momentum.
Geopolitical Thaw – Some conflicts may de-escalate faster than expected. China has incentive to avoid near-term Taiwan clashes due to its weak economy.
Ways to Invest in Physical Gold
For those still keen to purchase physical gold, here are some of the common investment formats along with pros and cons:
Gold Bullion Coins
Examples: American Eagle, Canadian Maple Leaf
- Recognized standard coin format
- High purity content (22 karat or higher)
- Extreme liquidity – large daily trading volumes
- Low buy/sell spread
- Slightly higher premium over melt value
- Storage/security still a consideration
Examples: Swiss bars, PAMP Suisse bars
- Very low premium over intrinsic melt value
- Ideal for storing larger quantity of wealth
- Large bars have less liquidity than coins
- Assay testing sometimes needed by buyers
- Storage and security more complex
Examples: Rings, watches, bracelets
- Wearable – no dedicated storage needed
- Customized designs
- Much higher premium over melt value
- Questionable resale value
- Purity difficult to assess visually
Smart Gold Buying Strategies
For investors still enticed by the yellow metal, here are some suggested tactics:
Allocate a Small Portion – Limit gold to 5-15% of a portfolio to enjoy diversification without excess volatility risk.
Dollar Cost Average Over Time – Spread purchases out monthly or quarterly to smooth timing uncertainties.
Buy From Reputable Dealers – Stick with highly rated coin/bullion dealers and avoid collectible/numismatic premium products.
Consider Gold Miner Stocks – As an alternative play leveraged to gold prices but without physical ownership hassles. Just mind the risks.
Use Gold ETFs Selectively – They eliminate storage needs but some introduce other incremental fees to weigh.
Predicting short-term moves in the gold price is notoriously difficult but investors should expect continued volatility in 2023-2024. Bullion has room to trend higher if inflation persists, recession hits, and geopolitics flare up. However, further Fed rate hikes, a strong dollar, and moderating consumer prices would pressure gold. For long-term oriented buyers willing to stomach some interim fluctuations, dollar cost averaging into physical gold makes sense as portfolio insurance. But keep allocations moderate, stick to highly liquid products with modest premiums over melt value, and utilize secure storage options.
Should I wait to buy gold after the next recession?
Possibly. Safe haven demand could drive additional gains if economic deterioration prompts the Fed to reverse course on interest rates. However, trying to time market bottoms is difficult. Many prudent investors simply dollar cost average into positions.
What percentage of my portfolio should I allocate to gold?
Investment advisers typically recommend keeping gold allocations between 2-10% depending on risk tolerance. Gold generates no income and tends to be more volatile than bonds, limiting its portfolio weight. Conservative investors might opt for 5% exposure while more aggressive traders willing to weather sharp drawdowns could push towards 15%.
Is gold or silver a better precious metal investment today?
Gold and silver generally trend in the same direction but silver has been known to see more dramatic upside as well as downside. Silver has more industrial uses driving both demand and volatility. Its lower price also makes silver more appealing to small retail investors who buy coins and bars. Gold appeals to more conservative investors focused on capital preservation and true portfolio diversification.
Should I wait for sub-$1,500 gold before investing?
Trying to pick precise long-term bottoms is nearly impossible and unnecessary. Prudent investors often dollar cost average into positions gradually which smooths out market timing risks. That said, under $1,500 gold would very likely prove an excellent entry point for long-term accumulators as long as global economic collapse wasn’t driving prices.
In another related article, 5 Methods for Investing in Gold in 2024