Gold Starts Off the Year With a Bang: 3 Reasons It Could Surge

gold-starts-off-the-year-with-a-bang:-3-reasons-it-could-surge

It’s safe to say that 2022 was not the best year that gold has ever had. While the yellow metal made some great gains early in the year, continued selling throughout the year drove the price down at times. Still, the recovery towards the end of the year resulted in an essentially flat year, so anyone holding gold didn’t really lose anything. But with other metals like silver and platinum making gains, the lack of growth could have been seen as disappointing.

Compared to financial markets, however, which for some indices saw double digit losses, gold did comparatively well. And in a sense gold continued to show its utility as a safe haven by essentially maintaining its value in the face of market uncertainty and financial losses.

This year has started off on a hot note, with gold surging ahead to six-month highs as more and more people are unnerved about the future and looking for safe havens. Here are three reasons gold could continue to surge in the year ahead.

1. Increased Safe Haven Buying

One of the biggest drivers behind gold’s popularity currently is the increased demand from safe haven investors. Over the past year, demand for gold coins from investors and savers has increased tremendously, helping to keep the gold price elevated.

Central banks have been net buyers of gold too, extending a trend that has developed over the past several years. They too understand the importance of gold as a safe haven asset in the event of currency crises and financial turmoil.

Gold has served as a safe haven asset for hundreds of years, and many people turn to gold to protect their wealth when they begin to feel unease about the future. As a tangible, physical asset, gold provides security that otherwise might seem elusive in an era in which so much of our financial wealth seems digital and ephemeral.

With safe haven buying remaining strong, it’s very possible that it could continue to increase if the economy ends up heading into recession, which many people fear. And if a recession does occur, it wouldn’t at all be surprising to see the gold price continue pushing ever higher.

2. Continued Inflation

While most measures of price inflation have abated somewhat, we’re not out of the woods yet. Markets may want the Federal Reserve to return to monetary easing, and in fact may believe that a Fed “pivot” is just around the corner, but the Fed is trying to put the kibosh on that.

The latest FOMC minutes demonstrated that Fed officials are worried that markets may be reading too much into the Fed’s decision to reduce its rate hikes from 75 to 50 basis points. That isn’t because the Fed is going to be easing anytime soon. Fed officials tried to make it clear that they’re in the inflation fight for as long as it takes, and that they won’t be returning to accommodative monetary policy.

That means that we’ll have to see just how long it takes for inflation to subside and to return to the Fed’s preferred 2% target. It didn’t take that long for inflation to shoot up to 40-year highs, but it has proved to be quite stubborn in reversing direction. There’s just about no chance that inflation will get down to 2% this year, and even Fed officials’ assessments after the December FOMC meeting seem to be excessively rosy.

Since gold has often found favor as an inflation hedge, continuing inflation could keep demand for gold quite strong. And if for some reason inflation were to stop falling, or even to start rising again, that would provide yet more strong support for gold.

3. Risk of Recession

The biggest question most people are asking today isn’t whether or not the economy will fall into recession, but rather how bad the recession will be. The consensus forecast seems to be coalescing around the fact that recession is all but certain this year.

Layoffs are continuing as businesses look to trim the fat ahead of an expected slowdown. Numerous indicators show that both businesses and households are pulling back on spending, even as they remain more indebted than ever.

Memories of 2008 are undoubtedly still fresh in the minds of many Americans, as the real recovery from that recession took years to materialize. The last thing anyone wants to see is a repeat of 2008 and its aftermath, but it may be too late to stop that from happening.

All many of us can do at this point is to position ourselves as best we can ahead of an impending recession. If businesses can cut their excess spending and start to build up reserves to weather the recession, so can individuals and households.

Many Americans have already started to try to safeguard their savings in advance of the recession, and they’re using gold to do that. They remember how gold performed so well in the aftermath of the 2008 financial crisis, and they’re betting that gold will perform similarly after the next recession.

Protecting Your Wealth With Gold

One way to harness gold to protect your wealth is through a gold IRA. A gold IRA is an IRA account that owns physical gold coins or bars rather than conventional financial instruments. Many IRA custodians don’t offer a gold IRA, which is why many people haven’t heard of one. But it can be a powerful tool to help protect retirement savings.

Because a gold IRA is subject to all the same rules and regulations as any other IRA account, it can serve as a way to protect your existing tax-advantaged assets by owning gold. A gold IRA can be funded with a transfer or rollover from an existing IRA, 401(k), 403(b), TSP, or similar retirement account.

These rollovers or transfers can be performed tax-free, allowing you to move your money out of assets you may consider more risky into ownership of physical gold coins or bars. Should you decide to take a distribution of your gold IRA assets, you can take them either in cash or in physical gold.

Like any other retirement account, a gold IRA isn’t intended to be your sole source of income. It’s just one more tool in your arsenal when it comes to preparing for retirement and protecting your assets against recession, inflation, and financial turmoil.

If you’d like to learn more about how a gold IRA can help protect your wealth, call the experts at Goldco today. With over $1 billion in placements and thousands of satisfied customers, maybe it’s time for you to find out how Goldco can help you safeguard your savings with gold.

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About the Author: Trevor Gerszt