Why buy gold in 2024?

2023 was a very volatile year for the global economy, and the outlook for 2024 is not hugely optimistic either.

2023 proved to be a year marked by considerable instability in the worldwide economy, and the prospects for 2024 do not appear significantly more optimistic.

Extensive government support, ranging from quantitative easing following the Global Financial Crisis to financial rescues and pandemic-related financial aid, has resulted in a saturation of the economy with money, contributing to a significant inflationary challenge.

The complications arising from the Russia/Ukraine conflict further exacerbated the situation, resulting in economic contractions, recessions, and notable fluctuations in the financial markets.

 

The outlook for 2024 is very subdued. Inflation is not yet under control, the UK may swerve a recession but any growth is expected to be very muted, the property market is on a downward trajectory and the markets are extremely uncertain. In this environment, gold comes into its own – as a safe-haven asset that tends to increase when other assets are declining, and as a relative hedge against inflation. There will be many opportunities to invest in undervalued assets when the markets bottom out, and gold is more likely to hold its own or increase in the current climate while any liquidity held in cash will immediately lose value.

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A powerful asset for the future

Investing in gold proves to be a highly favorable long-term strategy, emerging as the top-performing asset of the 21st century with a remarkable surge of nearly 700% since the year 2000*. Central banks are actively acquiring gold to bolster their reserves, and the demand for gold remains steady, following a sustained upward trend over the long term.

Gold investment is recognized as a secure haven for wealth, offering protection for the future.

*This performance is in contrast to the UK house price index, 10-year government bonds, the total return on the FTSE 100, and interest rates on cash ISAs.

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Reasons to invest in gold

Market uncertainty

Markets were very volatile throughout 2023 and that trend has largely continued into 2024.

Few market commentators would be comfortable calling the bottom with so much uncertainty ahead, so 2023 looks to be offering up more unpredictability. 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 property

The property market in the US has been on the slide for most of 2022, as interest rates started to rise earlier than other international markets. Now that the UK is catching up (interest rates have risen to 4.5% from 0.25% in december 2021), mortgage rates are heading up too, and it’s causing a squeeze in the UK property market. In december 2022, UK house prices were recorded falling at their fastest rate since the property crash of 2008. Interest rates are expected to rise further, and without a resolution to the cost-of-living crisis and a rebound in the economy, homeowners will struggle to pay their mortgages and new buyers will struggle to step into the market. The Office for Budget Responsibility predicts house prices will fall by 10% by 2024.

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. And where the idea of bond safety has been called into question during the bond rout of 2022, the risk-free allure is somewhat tarnished. Importantly, bonds have a fixed maturity, tying your investment up in the asset until this date, whereas gold can be liquidated anytime.

THE UK GOVERNMENT DEBT TOTAL

Current UK Government Debt: £2.5 trillion

Compared to savings

Central governments around the world have begun to increase interest rates in an effort to stem the tidal wave of inflation. Some of this has been passed onto savers, but none of it is enough to protect savers from eroding the value of their deposits. With inflation above 10% and savings rates between 1.5% and 4% depending on access restrictions, the value of your money will be lower when you take it out. Gold has historically hedged against inflation risk, and allowed investors to retain buying power, although past performance is not a guarantee of future results. Unlike cash in the bank, at the very least it doesn’t guarantee a loss of value.

Tax on savings

All individuals are obligated to pay taxes on their income, including any profits derived from investments like savings, equities, bonds, and property. However, there is an exception when it comes to physical gold. Investing in tax-free investment-grade gold allows individuals to legitimately sidestep taxes on their gains, contingent upon their individual circumstances (though it’s important to note that this tax treatment might undergo changes in the future).

This type of investment bears similarities to an ISA (Individual Savings Account) but operates without restrictions and penalties for early liquidation. Additionally, investors retain full control over their investment. Many individuals choose physical gold as an effective strategy for tax planning, aiming to minimize inheritance tax liabilities.

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Global instability

Over the past year, a prevailing theme has been the pervasive uncertainty that has gripped various facets of our world. Markets, intricately linked and globalized, have weathered pronounced volatility, exerting a lasting influence on the social, political, and economic landscape. The anticipated rebound from the pandemic’s aftermath has encountered substantial impediments, with inflation persistently elevated and economic advancements dissipating. In the midst of this precarious economic backdrop, the appeal of safe-haven gold as a sought-after investment has intensified, offering a valuable addition to a well-rounded portfolio.

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A historic global currency

The enduring value of gold stems from its rarity and unchanging nature. Despite the cumulative global gold production exceeding 200,000 tonnes throughout human history, this amount, when melted down, would occupy only three to four Olympic swimming pools. According to estimates by the World Gold Council, approximately 50,000 tonnes of proven reserves remain in the ground.

This scarcity is a fundamental factor contributing to gold’s value, and it has served as a traded form of currency for millennia. In the seventeenth century, goldsmiths played a pivotal role in shaping the modern banking industry. Presently, central banks and nations are obligated to reserve a specific percentage of their wealth in gold as a safeguard against financial risks.

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