When should you buy gold?

The phrase we hear more often than any is; “Is now a good time to buy gold?”. With hindsight it’s easy to look back and identify the periods when gold’s value rose the most. With its close inverse relationship to the US$ and the global economy, following and predicting market cycles is one way to try and predict the best time to buy gold.

While trying to buy at the bottom of the market and sell at the top, may sound like a wise strategy, it’s actually impossible to achieve, even for the smartest market traders. Holding gold over the long term has proven over the years to provide a secure store of wealth and outperform inflation.

A popular phrase when considering when to buy gold is; “It’s not the timing of the market, but time in the market”. In other words, buying and holding for the long term can often prove more successful than trying to actively buy and sell dips and peaks.

Here are five factors to consider when deciding when’ the best time to buy gold.

While it’s impossible to predict the future, timing is about stacking the odds in your favour. Looking at market fundamentals, you can choose to invest in assets which look most likely to perform well during certain periods.

Unlike crypto currency, gold has a long history and track record, so we’re able to see how gold has performed before to help predict how it might perform over the next few years.

As the world’s best-known safe-haven asset, investors tend to buy gold most when the economy is struggling. When stocks and property values fall, unemployment rises and inflation spikes, gold has tended to reap the benefits.

If you feel the economy is set to struggle, it could be a good time to buy gold.

The gold price can sometimes be volatile. It’s important not to panic or get too excited during big weekly price moves. In the short-term, the direction of the gold price can be impossible to predict. However, over the long term gold has steadily risen in price.

Gold is known as a great hedge against inflation because it has proven to maintain its purchasing power over the decades when paper currency has fallen in value.

While shrewd (or lucky) timing can really boost returns, we’d always encourage gold investment to be a long-term commitment to really reap benefits.

A popular investment strategy which can be applied to gold is known as Dollar Cost Averaging (DCA). This means buying little and often so that the price you buy at averages out over the years, meaning less dependence on exact timing.

A twist on this strategy is to keep cash in reserve to buy gold whenever you see a significant price dip. While the gold price may go lower ion the short-term, buying in tranches can iron out price volatility.

There are two possible disadvantages of this approach. Higher premiums will be paid on regular smaller purchases. Discounted prices can be achieved with larger investments so buying in one lump sum can help achieve the biggest price reduction.

Secondly, gold’s general trend in the long-term is upwards. So in theory buying as much gold as possible immediately should yield better returns than buying as the price rises.

We’re yet to see a clear price trend linked to time of the day. Some argue that the live gold price tends to spike just before the daily LBMA fixes at 10.30am and 3pm. So you may wish to buy at other times if you believe this to be true.

Others claim that they see trends when certain markets open such as Asia or the US. While we’re not sure this trend exists, you should be aware that the major economies still impact markets the most, no more so than the US. With that in mind, be prepared that gold prices tend to move most in the London afternoon if the US releases a particularly important piece of economic data.

While no two years are the same, it’s also possible to analyse historical gold prices to see if any times of the year are better than others to buy gold.

Over the past 50 years the months with the highest average gold price increases have been January (1.3%), August (1.2%), September (1.9%) and December (1%). With so many factors influencing the gold price, it’s impossible to identify exact reasons. But we tend to see investors keen to address finances and investments in January to kick start their year and also an increase in buying for Diwali in the autumn.

During certain periods of high demand, supply of gold coins in particular, can be tighter than usual. Buying during these times can lead to paying excessive premiums for your gold coins.

Throughout the Covid pandemic and subsequent economic fallout, supply of new coins has struggled to keep up with demand. Even more apparent has been the lack of gold sellers during these times. This has led to premiums on second hand Sovereigns soaring. To buy at the best prices, focus on buying when supply is abundant.

While making huge investment returns sounds appealing, owning physical gold is primarily about buying security and protection. It offers investors the comfort of owning something with physical intrinsic value, rather than the array of paper and electronic assets which can diminish in value completely overnight.

It acts as a store of wealth to shelter your money from inflation. It can also increase in value when all your other assets fall.

The timing of the next market downturn is impossible to predict with any accuracy. Usually gold prices spike significantly as soon as news of a black swan event emerges. For this reason, it’s always good to own some gold in preparation for the next down cycle, whenever it may be.