The rise in gold’s price and why it’s the ideal time to invest.

Gold has increased in value by 33% so far this year, gaining popularity as a safe haven asset among investors

The social and financial crisis resulting from the Covid-19 pandemic has managed to position gold as one of the safest and most reliable forms of investment right now.

Its price has been on the rise throughout the year, adding more than 600 USD to its value, and is now trading at historical highs per troy ounce. This precious metal is the new focus of investors looking for an asset with which to retain their purchasing power.

Here, we'll explain the main factor for the rise in gold prices and the advantages of using it as a form of investment

Why is gold prices rising?

This year, an unpredictable combination of elements has created the perfect bull climate in the gold market. The most relevant factors are:

  • The instability of other investment assets: The most attractive forms of investment are those that get good returns, such as bonds and certificates of deposit. These "regular" forms of investment are paying zero or even negative interest rates due to coronavirus pandemic, something never seen before. This, added to the inflationary adjustment, would cause losses instead of gains.

Gold does not produce gains with interest rates, so it’s usually less attractive; but now, with the scenario reversed, the metal became a stable asset to protect capital and as a form of savings, increasing its demand.

  • Dollar index falls: The price of gold is tied to the USD. If the dollar weakens, the price of gold will rise and vice versa. This is because by lowering the cost of the currency, gold becomes more accessible to investors of stronger currencies, increasing its demand and so its price.

  • Gold is a limited resource: Unlike regular money that can be printed by governments, gold is a scarce asset and has a constant demand since it’s used in jewelry and industrial processes. This combination results in the stability and a rally in its value.

  • Financial uncertainty: the government announced several economic packages to support people during these times, causing economic uncertainty and a growing concern about inflation rates in the future. As the price of gold is not subject to political and social crises, its popularity as a safe haven has increased. As gold demand grows, its price rally.

Gold Investment Advantages

As an asset shielded against a crisis, gold becomes an option for those seeking to increase or protect their finances. Here are the advantages of investing and saving in this precious metal.

  • Its price is rising and predictions suggest that it will continue to rise for the rest of the year.

  • It’s a hedge against inflation. Being a resource, gold does not lose value but rather increases in line with the inflationary rates.

  • It is an asset with high liquidity. This means that it can be sold at any time or place.

  • Small amounts can have a significant value.

  • Its price is not affected by social and political crises.

  • Its scarcity and limited production act as stabilizers in its value.

  • Balances the financial portfolio and compensates for the loss of other assets.

When using gold as an investment it must be taken into account that although its value tends to rise, prices could suffer falls or "corrections". Another factor to consider is its storage; It may require the hiring of an appropriate place such as a safe where it is protected against theft and loss. 

How to invest

There are multiple ways to invest, either by the purchase of physical gold or acquiring financial assets linked to gold.

Physical Gold

It’s the traditional way to own gold. It is a very simple and easy process. Physical gold can be purchased in banks among other places and it has high liquidity. You can ask your jeweler for advice about how to buy gold safely. 

EFT Funds

One way to invest in gold without buying physical metal is through the purchase of financial assets linked to gold.

Gold related stocks are also an option for investors that seek this form of investment. 

The value is not related to the price of gold itself, but to the value of the shares and the exposure of the companies involved in the gold mining industry.

Before including gold in your investment portfolio, we recommend consulting with a financial advisor who can analyze the most appropriate risks, options, and processes for your needs.