All that Glitters is not Gold: 3 reasons to invest in gold in 2023

All that Glitters is not Gold: 3 reasons to invest in gold in 2023

Written by Katie Gomez

It’s no secret that it has been a tough year for the major market averages, with indexes down 20%. However, one sector has stood out, slowly increasing as others plummet: gold mining. Stock traders know one of the keys to success is adapting in times of market adversity and seeing things from a border perspective. This broader perspective allows traders to take advantage of the losses to find new opportunities. 

Unlike currencies like the U.S. dollar backed by government trust (fiat), gold is an investment of undeniable value; which allows investors to preserve their purchasing power. Therefore, even when the dollar value fluctuates, you can rely on gold as a steady tangible investment, unlike cryptocurrencies floating in the metaverse. 

Silver and gold have always made safe and substantial investments because they have real internationally recognized value, unlike their perilous counterparts, cryptocurrency. Ironically, it is the latter this generation of traders has chosen to invest in and defend until the infamous recent crash of FTX. The future of cryptocurrency is more unsure than ever, especially given the looming recession in 2023, while gold is on the rise. 

Many gold miners are trading in positive territory despite its losses in recent years. The gold mining index has scaled back its 30% year-to-date loss to just 13%. Although producers such as Barrick Gold (GOLD) are still struggling to bounce back from the hit in 2020, researchers agree it has hit its low and will only increase from here. Assuming the gold price cooperates, investors will see GOLD shares rise to $13 in the next 18 months (Dart, 2022). 

That said, now is the time to take advantage of gold rising, and choose a solid, more trustworthy investment. You can train your mind to see a dip in the market as either a detriment or a buying opportunity; all you have to do is change your perspective.

1.) Gold can fight inflation:

The fight against inflation is an uphill battle as our currencies and the trust behind their values keep changing. If the FTX fall taught investors anything, we have to be more cautious going forward checking the validity and reliability behind our investments. The benefit of investing in gold and other precious metals is that it tends to hold its value, despite the changing inflation rates. 

Given the already dramatic increases to inflation and rising fear levels for the coming recession, ​​Jeurg Kiener, managing director and CFO for Swiss Asia Capital says gold prices could easily surge to $4,000 an ounce in 2023 (Jacob, 2022).

2. ) Deflation protection 

In addition to offering leverage during inflation, gold can also benefit investors by acting as a source of protection during the following deflation period trends. Although deflation has not been as prevalent as the global financial crisis in 1929 (The Great Depression), the economy’s future is unpredictable, we never know if business activity will slow down to that point again. During the Great Depression, purchasing power for gold skyrocketed, while other prices endured a steep decline. Therefore, since gold is and will be the safest currency to hold onto, it might be wise to invest now while the price is still relatively low. 

3.) Portfolio Diversification 

All stock traders say they dedicate their success partly due to their diverse portfolio. If you don’t take any risks and you’re consistently buying and selling the same stocks, you’ll find yourself stuck in a trading rut. Although diversification holds many benefits, the most significant one is that it can improve your potential returns and stabilize your results. When you own multiple assets each performing in a different way, you can reduce the overall risk of your portfolio, reducing the power of smaller single investments; so if an individual investment performs poorly, it will not hurt your account as much. 

If your current portfolio is a culmination of stocks, make it your goal to find other investments unrelated to stocks, like gold. Historically, it has benefited traders to invest in stocks and gold, because of their highly negative correlation. For example, the 1970s had some great years for gold, but terrible for stocks. However the 1980s to 90s saw gold plummet, as Wall Street grew more popular, transforming stocks into the most sought after investment. Then the economic crisis hit in 2008, seeing stock prices drop significantly, while gold began to rise again. The market may not be predictable in the short run, but in the long run we can detect patterns more clearly; it acts as a constant roller coaster. 

Successful investors know to combine gold with various stocks and bonds to create a properly diversified portfolio, to reduce their investments’ overall volatility and risk. Therefore, the more diverse your portfolio is, the more you win during different periods. You must be willing to sit tight and play the long game. As your portfolio grows, you can feel assured that a single investment can go through rough patches without ruining your portfolio. 

In conclusion, incorporating gold in your portfolio in 2023 is a smart investment. Although gold prices can be volatile in the short term, it has and will continue to hold its value in the long run, unlike its fickle counterparts. Over time, gold has proved to be a solid investment as it has served as protection against inflation and outlasted hardships other major currencies could not. 

Historically, the price of gold follows important events that caused a decline in value of paper investments (i.e., stocks and bonds). We saw this in the Great Depression, Wall Street crash, Housing Crisis, COVID, and we will likely see it in the coming recession next year. Hindsight is 20/20, but we’ve learned enough from the past to see a clearer future picture. Although gold prices can be volatile in the short term, it has and will continue to hold its value in the long run, unlike its fickle counterparts.