Is gold a good investment in 2022?

Since the stock markets began, gold has gained a reputation to have a negative correlation to stocks and a positive correlation when compared to inflation. However, gold’s history as a financial asset and store of value began long before this.

Gold coins were minted and used as currency as far back as 550BC, but gold was known as a sign of wealth long before its use as a currency. Treasures containing gold have been discovered from as early as 4000BC, so the precious metal has been notorious for its relevance to power and wealth for many millennia.

However, it was not until the late 1800s when gold gained its value in contemporary finance. The majority of nations adopted the gold standard, which involves fixing the value of their currency to the price of gold. Since, the gold standard has been dropped and readopted in many countries until it was finally replaced by freely floating fiat currencies​​ in 1971.

The price of gold​​​​ remained relatively stagnant until the 2008 financial crisis. This spike in price was in response to the adoption of quantitative easing (QE) by central banks. The justification of gold’s appreciation in value follows the general logic that QE creates inflation, and gold prices generally rise alongside inflation.

Compared to other commodities​​, gaining exposure to gold can be easy. Investors can choose to invest in gold with many investment products. It is also less volatile than certain commodities, such as oil spot and futures​​​​​ or agricultural products that can be affected by seasonal events or economic instability.

Low-interest rates and financial uncertainty following the Covid-19 market crash caused gold to enter a bull market. If financial uncertainty continues, most likely propelled by the weakening in economic growth following the pandemic, we could see gold hit new highs in 2022.

Gold can be a good investment asset to have as part of a balanced portfolio​​​​​. Gold boasts some of the highest liquidity in the commodity markets and has more often than not increased in value over time.

If you were to invest $1,000 into gold 30 years ago, it has since then increased by over 500%. Meaning that your original investment could have been worth over $5,000. However, if we know anything about financial markets, it’s that past performance is not an indicator of future performance – although, an asset that has shown strong performance over many years could be preferred to one that hasn’t performed so well.

The price of gold since the coronavirus pandemic has further reinforced its utility as a hedge to the S&P 500​​. When the stock markets crashed, gold hit new highs not seen since 2012, with many analysts still predicting further gains. This is most likely a result of investors reallocating their wealth into gold, as it is known as a ‘safe haven’ and a hedge to stock markets and financial uncertainty.