Gold stalls just short of new highs: Should you buy in?
Gold prices have outperformed stocks so far in 2022, but will the uptrend continue or stall out? Here’s what to consider before buying in.
Gold prices have taken a pause this week after a big upswing that started in February, slipping to about $1,950 per ounce from a high of $2,039 on March 8. That was slightly $10 below the all-time high.
If you think rising consumer prices mean new highs for the traditional inflation hedge, it could be a chance to buy in on a dip. But it’s also possible gold prices have stalled out. Here’s what to consider.
Investors seeking safety
Gold prices likely took off for a couple of reasons. The first reason for investors to jump in was inflation, which drove expectations of interest-rate hikes from the Federal Reserve. Investors moved out of riskier stocks to what are seen as safe-haven investments, including gold.
Fears of the impacts of the war in Ukraine, including supply chain issues that would hurt stocks and drive inflation, may also push investors to safe-haven investments.
While Bitcoin and other cryptocurrencies are sometimes seen as alternative hedges to gold, gold’s move suggests it has kept its safe-haven role. But is it time to buy on this dip, or is it too close to a peak?
Last time gold peaked during a crisis was in 2011
Gold’s price history is worth a look here.
Gold rose during the 2008 housing bust and peaked at $1,770 per ounce in 2011 and just above in 2012. Then it fell back. If you bought in at the peak, you would have had to wait until 2020 to break even or make a small profit.
Compared to the S&P 500, which gained over 200% during the time, buying gold at that peak was a bad call.
Similarly, gold hit a peak in 1980, but then fell back for more than 20 years before reaching another new high.
Will gold outperform stocks this year?
The S&P 500 is down 12% year-to-date, while gold has gained 6%. Short term, gold has been the better performer so far in 2022.
So could gold outperform stocks for the full year?
It’s possible, but far from a lock. The Federal Reserve’s actions may curb inflation and thus lower demand for gold. Rising interest rates could make 10-year Treasury yields higher, making them more attractive as a safe haven.
And in the long term, stocks tend to outperform gold by a large margin.
Gold may still belong in your portfolio if you’re looking for a stable alternative to stocks in volatile times, or if you worry about long-term currency issues. But you should be realistic about its performance, and recognize you’re buying near a new high that may turn out to be the top.
There are multiple ways to get exposure to gold
If you want to buy the metal for your portfolio, you can invest directly by buying gold bullion or buy an ETF that owns gold such as SPDR Gold Trust (GLD)
Or you can invest in companies and funds that are involved in mining. Some of the popular gold mining stocks include:
Want to invest in gold? Learn more about gold stocks or explore gold bullion buying options.
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