Is gold a good investment in the long term?

Gold has historically symbolised prestige and luxury, with ownership of the asset conveying status and wealth. This lasting connotation explains why gold is a good long-term investment now and why that’s been the case for centuries.

Gold still holds cultural significance today in many countries, largely India and China, where it is gifted by families at times of betrothal, marriage and birth. 

To this day, gold remains a go-to asset in times of uncertainty. Read on to find out why gold is a smart investment for the long term.

Gold has doubled in value in the past 10 years

Looking back just over the past 10 years, it’s evident that, as a fundamental investment vehicle, gold still holds weight. On Christmas Day 2014, the gold price stood at $1,117 and now it’s more than twice that price.

Clearly, gold price peaks and troughs are more pronounced than in the 1960s when it was priced in two-digit figures. Uncertainty in the stock market and fears of economic crisis can cause the value of gold to rise. 

In Q1 of 2023, the value of gold increased by 9.2% to $1,980 USD per ounce. The collapse of the Silicon Valley bank in March 2023 and geopolitical tensions played a big part in this outcome.

Gold has had a great start to 2024. It opened the year at $2,062 and currently sits at over $2,300. That’s down from a record high on May 20 2024 of $2,439.

In the past 10 years, gold has been a safe investment. Gold has gone up in value over this time and provided an investment hedge against inflation.

Gold Outlook Over the Next 10 Years

Gold’s investment future looks bright over the coming 10 years for the following three reasons:

A Hedge Against Uncertainty

Excluding over-the-counter sales, demand for gold has rocketed since the outbreak of the COVID-19 pandemic. In 2020, gold demand was 3,676.55 tonnes, rising to 4,002.15 tonnes in 2021 as the world began to open up again.

2022 saw demand of 4,699.03 tonnes, experiencing a slight dip in 2023 to 4,448.35 tonnes. 2022 and 2023 saw the second and third highest annual demand for gold in history, behind only 2013 where there was unusually high demand from the jewellery sector. 

Much of the demand came from the central banks of emerging markets and developing economies amid, in the words of the World Bank, “heightened geopolitical uncertainty… a key upside price risk.” 

The People’s Bank of China was the leading buyer. Other major purchasers were the central banks in Czechia, India, Iraq, Libya, Qatar, and the Philippines. The trend is continuing into 2024, according to the World Gold Council. 

Uncertainty affects the price of gold, leading central banks, traders and market actors to reduce their exposure to riskier assets. As Rupert Rowling, experienced Precious Metals Market Analyst, explains:

“Gold has shown itself to be a stable asset that has endured over centuries and offers a comfort blanket for money managers when other sectors are struggling.

“Political uncertainty, concerns over the global economy and conflict, such as Russia’s invasion of Ukraine, are all factors that will typically boost the price of gold.”

Macroeconomic Pressures

Furthermore, the gold price may be influenced by inflationary pressures, economic recessions, or stock market dives, all presenting further upside risks in the next decade. Nations at war may further derail economies and fuel gold price projections up again.

Inflation is an example of macroeconomic pressure that gold investors will want to pay attention to. Historically, investors see gold as a hedge against inflation. 

That is because gold and the US dollar typically are inversely correlated, meaning that when the US dollar index increases, gold prices decline. So gold prices rise when inflation causes the US dollar to lose value. 

In June 2022, US inflation peaked at 9.1%, the highest for decades. When inflation is high, digital and physical gold stands out as a particularly attractive investment. 

Some analysts are forecasting a return of inflation, despite its recent drop to 3% in June 2024, a level it’s kept close to ever since. This fear may partly explain why gold prices have risen from around $1,850 in June 2022 to over $2,300 now despite lower inflation.

Long-term geopolitical issues will also determine economic sentiment and influence consumers’ decisions on whether to keep private assets or hold, this is yet unclear. The Russia-Ukraine war and the implications of China’s position is a case in point.

For private wealth, the alternatives are for assets to be locked away in bank vaults, in safes at home or kept in the investment sector in gold-backed exchange-traded funds (ETFs).

An alternative, which offers an attractive interactive element to buying physical gold, is in its digitalisation into blockchain as cryptocurrencies, such as the precious metals-backed currencies offered by Kinesis. This can be a transparent, proven record to potentially hedge the price of gold against any future variants.

Future Demand

In terms of the demand for gold, there will likely be an increased industrial requirement in the coming 10 years in order to serve smart city infrastructure, aerospace applications such as satellite technology, and medicine.

Demand from the electronics sector bounced back in 2021 by 9% year-on-year to 330 tonnes. More advanced electronic devices and electric vehicles are gaining traction, and the consequent expansion of 5G infrastructure and automation devices will be a theme going forward spurring gold demand.

Is gold still a good investment in 2023?

As we’ve seen, gold does go up in value over time, albeit with peaks and troughs. The question investors are now asking is whether it will continue to be a good investment over the next 10 years.

Gold can be kept as insurance for times of trouble in its physical form of either gold coins or bullion. This will remain a hedge for the occurrence of need when the pot of gold might have to be used or later replenished in times of abundance. This is unlikely to change due to the cultural basis of its accumulation by consumers in the retail sector.

We’ve seen how central bank demand has been the main driver of the increase in demand for gold in 2022 and 2023 and how it’s carrying on in 2024. That’s not the only factor though that’s influenced the price.

Investor sentiment

Investors have shown a strong and ongoing interest in bullion bars and coins. Although demand decreased slightly in 2023, it’s much higher than the demand back in 2019.

The behaviour of ETFs in 2020 with their heavy investment in gold demonstrates the precious metal’s safe haven status. As the world began to open up again in 2022, we saw large outflows signalling profit-taking, portfolio reallocation and improving economic conditions.

The volume of gold sold by ETFs in 2021, 2022, and 2023 is 753 tonnes less than they bought in 2019 and 2022. This suggests that ETFs are still bullish on gold from a long-term perspective.

Gold usage

Demand from the jewellery sector has caught up with 2019 levels and demand was consistent across 2021, 2022, and 2023. This suggests a return in consumer confidence. 

The use of gold in industrial settings has remained resilient while the use of gold in the tech and electronics sector is still around 5-10% down from before the pandemic.

Supply-side gold

Although gold mining production levels remain steady, the former director of the U.S. Mint, Ed Moy, told Kitco News that there was a shortage of gold bullion in the world. In addition, the volume of recycled gold increased by around 10% in 2023 because of the higher prices for the metal, according to the World Gold Council.

Despite Mr Moy’s warning, there seems to be little prospect of a major demand-supply mismatch any time soon. However, should one arise, that would be positive for gold holders.

Future price predictions for gold

Forecasts for the price of gold in 2024 and beyond vary but they generally suggest that buying gold is a good investment for any portfolio.

Investment bank Goldman Sachs predicts $2,133, Long Forecast at least $2,368, and Coin Price Forecast $2,651. The most optimistic project at Predict-Price believes the price could reach up to $3,613.

Across a longer timespan, WalletInvestor predicts a price of $2,832 in May 2029, CoinCodex $3,797.10 in 2030, and Coin Price Forecast up to $4,469 between 2027 and 2030.

Investing in digital gold is a great option for diversifying your portfolio and building wealth. Many gold investors opt to divide their holdings between digital and physical gold.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The opinions expressed in this article, do not purport to reflect the official policy or position of Kinesis.

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