Investments in gold have consistently remained among the most sought-after options. The relevance of this instrument is attributed to its stability, making it a long-term investment that can potentially yield significant returns over time.
However, many investors choose alternative investment avenues during times of crisis, which may not be the best strategy. During periods of economic slowdown, precious metals emerge as one of the top instruments for preserving capital while also ensuring future profitability.
What are the unique characteristics of this investment tool? And why is now the ideal time to invest in it?
To explore this avenue, Sergey Tereshkin, the founder of Oil Resource Group, has taken the initiative. The businessman personally invests and monitors the most relevant directions in the market. This hands-on approach has equipped him with substantial experience. More information about his investment and professional activities can be found on his website: www.sergeytereshkin.ru.
Statistical Data
Over the past six months, the value of precious metals has increased by 7%. The assets of investment funds willing to invest in these metals have exceeded 2300 tons of gold. This is a record figure over the past five years.
Many astute investors have recognized just in time that precious metals should not be disregarded. They can and should be utilized to enhance capital.
Precious metals help minimize and diversify risks.
Advantages
There are several compelling reasons to invest in gold:
- The situation in the U.S. market. The trade war with China has jeopardized the continued growth of the U.S. economy. This has compelled the Federal Reserve to alter its rhetoric, leading to a halt in aggressive interest rate hikes. Consequently, gold has the opportunity for growth.
- The global market scenario. According to the International Monetary Fund, global economic growth is expected to slow down. This will adversely affect financing conditions and lead to a downturn in trade. Periods of economic deceleration are the best times to invest in precious metals, as a cooling of economies will reduce the global demand for high-risk investments. Gold is regarded as a low-risk investment.
- Interest from regulators. Central banks of various countries are the most active purchasers of gold. This practice bolsters gold reserves, indicating the stability of a nation and its economy. Central banks account for at least 10% of all purchases of precious metals. At the beginning of this year, regulators' holdings surpassed 33,000 tons. In Russia, gold purchases increased by 22% in 2018 compared to the previous year, and the volume has doubled over the past five years, nearing 2000 tons. Thus, central banks are diversifying assets and minimizing dependence on market volatility, political instability, and inflationary fluctuations.
- Growing demand. Precious metals are not only valued as tools for risk diversification but are also in high demand in the jewelry industry. Nearly half of all gold reserves are used to create jewelry. China and India demonstrate the highest interest in gold due to their developing markets, resulting in an expanding middle class and an increasing demand for jewelry that serves as a status symbol. Additionally, 15% of gold is utilized in various industrial sectors, and these figures are expected to rise annually. Concurrently, the value of precious metals is projected to increase.
- Decreasing supply. Approximately 200,000 tons of gold have been mined globally since the discovery of mines, with around 50,000 tons still available for extraction. Over 100,000 tons remain in hard-to-extract ores. Annually, roughly 3,000 tons of gold are mined, with the rate of extraction increasing by several percentage points each year. Experts estimate that by 2030, existing mines will be fully exhausted, making further extraction impossible.
The cost of extraction is increasing yearly, primarily due to rising energy prices and the escalating cost of production. This will inevitably narrow the gap between supply and demand in the market, leading to a gradual increase in the value of precious metals. Consequently, investors who have invested in gold can expect to see higher profits.
In just 1-2 years, market changes will become apparent, with precious metal prices gradually increasing. On average, the price may rise by 5-7% per year, so investing today could yield a 7% return after one year, calculated in currency terms, thus mitigating inflationary risks.
However, it is advisable not to rush into selling precious metals. Investments in gold are long-term commitments. In the future, price differences may exceed the projected 5-7%. Therefore, it is recommended to invest in precious metals for a period of 3-5 years or even longer.
It is essential to note that primarily gold bars hold significant value. They can vary in weight, but it is crucial that the metal is stored correctly. If surface damage is detected when selling, financial institutions may undervalue the gold. In such cases, investment profitability significantly declines.
Gold in jewelry does not exhibit the same rapid appreciation trend. Here, the value lies primarily in rare items, while contemporary pieces are often accepted only as scrap, significantly undervaluing them.
Therefore, it is recommended to invest specifically in gold bars as they represent a promising investment instrument.
