Stuart Simonsen of Billings, MT is a serial entrepreneur, portfolio manager, and investor. In the following article, Stu Simonsen discusses why gold is such a sought-after investment in current market conditions.
Investing in gold can be beneficial for portfolio diversification, thanks to its ability to retain value. After all, it's somewhat rare, a finite resource, and its price isn't directly related to other asset classes. Although, gold has seen some interesting worth movements in recent years.
Stuart Simonsen of Billings, MT says that gold prices have risen by 450% since 2000, reaching a peak at over $2,000 per ounce in August 2020. But since then, it has been declining.
That is, until March 2022, when it once again climbed above the $2,000 per ounce mark in response to the geopolitical tensions related to Russia's Ukraine invasion.
But like most good things, this March high had to end, and September saw the gold market drop to a 12-month low. And as of November 26, 2022, it's struggling to move beyond $1,750 per ounce.
Gold as an Investment Heading into 2023
Gold prices drastically underperformed experts' predictions for the majority of 2021, due to the various hikes of interest rates, high inflation, and uncertainty about economic recovery from the coronavirus pandemic.
Stuart Simonsen of Billings, MT explains that while investors see gold as a hedge against inflation, it's a much less attractive option during periods of high interest rates since they don't get interest or dividend payments from gold investments.
As any economist can attest, central banks worldwide (particularly the Bank of England, US Federal Reserve, and the European Central Bank) aggressively raised interest rates this year. And there are still more increases forecasted in 2023.
Initially, the war in Ukraine drove gold demand through the roof, with analysts witnessing prices climbing from $1,800 per ounce to $2,043.30. Falling bond market prices and global equity also played into the massive growth gold experienced according to Stuart Simonsen of Billings, MT.
Afterward, it retreated to the $1,800 mark during the second quarter before shedding even more value throughout the third. July 2022 saw the price per ounce hit its lowest level since March 2021 at $1,703.60.
Traditionally, Stuart Simonsen says that the price of gold has been driven by factors such as those in the non-exhaustive list below:
- Geopolitics
- Interest rates
- Inflation
- The value of the USD
- Supply and demand
- Global economies
This year, the main influencing forces are the central banks' interest rates, geopolitical uncertainty, and inflation.
The Benefits of Investing in Gold
Even with the current market in mind, the experts at
Harvard Gold and Economy Observer say investing in gold brings many advantages, particularly:
#1 Inflation Protection
Gold investments protect against inflation. Stuart Simonsen says that tying up money in savings accounts puts funds at risk due to inflation, but gold prices tend to rise, giving investors increased value.
#2 Capital Appreciation
Gold prices rise, ensuring investors make decent money from capital appreciation.
One of the greatest examples occurred across ten years, from August 1999 to June 2019.
In 1999, it cost $255 per ounce. But in June 2019, the per-ounce cost rose to a whopping $1,326, giving those who invested ten years ago something to smile about.
#3 Safety from Economic Downturns
Stu Simonsen reports that those who invest in gold aren't as susceptible to economic downturns. Even if stock prices crash and currencies lose value, gold stays strong.
Is Gold a Good Investment Now for The Future
Stu Simonsen of Billings, MT Despite the benefits, commodities experts provide a cautious outlook on the current gold climate, with other potential downsides to come.
ABN Amro analysts have
released a report that downgrades their gold price forecasts for 2022 and 2023. The team noted that the US dollar, real yields, and the central bank policy will keep dominating the direction of gold prices during the final part of 2022 and the beginning of the following year.
In the revision, they altered their previous per-ounce price for the end of the year ($2,000) to just $1,700.
However, Stuart Simonsen of Billings, MT says that the same analysts dictate that the outlook is more favorable for 2023. The US dollar should weaken, and the year's second half should see the Federal Reserve begin to cut rates. Plus, lower US real yields should occur, meaning gold prices should be around $1,900 per ounce by year-end.
Individuals considering investing in gold right now should consider the volatility of all markets at the moment. It's difficult to assess where gold prices will be in five hours, let alone make longer-term predictions. Thus, investors should proceed cautiously and conduct their own research and analysis.
