Why Buy Gold? Here’s 15 Reasons to Buy Gold Now in 2022

“Haven’t gold prices gone up quite a lot in the last year or so? So why buy gold now? Isn’t it too late to buy?

That’s one of the common responses we get when we mention we are involved in selling gold and silver bullion. Unlike a number of years ago the average guy or girl in the street now knows that gold has risen a fair bit since the start of the millennium. And even more so in recent months. But – they think that because prices are up compared to where they were, that there’s no need to buy gold now.

Looking back at past articles, while we’ve mentioned many reasons as to why to buy gold in the past, we’ve never actually written them all down in one place.

So today we turn our thoughts to the question “Why buy gold now in 2022?”. While there might appear to be some risks, aren’t the economists and central bankers telling us the likes of high inflation will pass in the next year or so? If everything seems fairly stable, why bother to buy gold?

Why Buy Gold – Reasons to Buy Gold Right Now in 2022

Off the cuff without too much thought we can come up with a multitude of reasons currently as to why to buy gold in 2022 including:

Why Buy Gold

• Markets in General Are Still Very Risky

Share markets globally have been rising steadily for many years. In fact, this is now the longest bull market ever. So it seems likely we are much closer to the end rather than the start of the current cycle. The last few months have shown this, with many market indexes down from the end of last year. Likewise with property prices. Global share markets have been overdue for at the very least a correction.

Generally if share markets are doing well, gold doesn’t. However in 2019 we saw both shares and gold rise. This also occurred for a number of years in the mid 2000’s. Our guess is with the Fed now threatening to withdraw some of the liquidity it has pumped into the system we could see shares fall even further than they have thus far in 2022. So if we see a further share market correction or even just heightened volatility this could be even more supportive of gold.

Our guess is that gold is entering a cycle where it will outperform both property and sharemarkets. For more on this see:

NZ Housing to Gold Ratio 1962 – Dec 2021: Measuring House Prices in Gold‎

Dow Gold Ratio: How Does Gold Compare to Shares For the Past 100 Years? Where to From Here in 2021?

• Geopolitical Risk is Still Very High

In recent years we have had warships amassing in the Strait of Hormuz over murmurings of Israel attacking Iran. There has been a lot of  “sabre rattling” going on between China and Japan over the disputed Senkaku Islands. In 2017 we had the agitation between the USA and North Korea added to the mix. We also had the trade war between the USA and China added into the mix.

But now we have an actual war in Ukraine, with tensions between Russia and the west rising. (See this article for more on that topic: How Does War Affect the Gold and Silver Price?). Gold usually performs well in times of geopolitical tension and the stress levels are certainly high at the moment.

• Inflation Rates Are at Multi-Decade Highs

Inflation rates the world over have recently hit the highest levels since the 1980’s. While central planners say this is likely to be temporary, we think it may be the start of a much longer term cycle. Either way, it means a loss of purchasing power. The only argument is over how long a period this loss may occur.

• Inflation to End of the Global Central Bank Policy of Easy Money?

Central bank balance sheets have been ever expanding since the 2008 crisis. The European Central Bank, the US Federal Reserve and also the Bank of Japan all engaged in massive money printing programs over the past decade. Then in 2018 and through to 2019, the US central bank attempted “quantitative tightening”. But in September 2019, the Federal Reserve had to reverse course when troubles arose in the overnight interbank “repo” market . (Read more on that here: Federal Reserve Balance Sheet Reduction: What Impact Will it Have?) 

Since then the Fed’s balance sheet has been increasing at the fastest pace since the height of the 2008 financial crisis. But now in 2022, we are again at a time where central banks are having to reduce this stimulus and also raise interest rates as inflation threatens to get out of control.

So they face an impossible exit.

Raise interest rates too much and cause markets to crash. Gold could dip initially in this situation but is likely to come back fast like it did in the 2008 crash.

Or don’t raise them enough and let inflation run wild. High inflation is indirectly positive for gold. See below for more on this.

So in the long run, which ever way the central banks go, we think it will be positive for gold.

• Real Interest Rates are Negative

A common misconception is that gold ‎performs poorly when interest rates rise as gold pays no dividend or ‎interest.  However the key is what real interest rates are doing.  The real interest rate is ‎the nominal interest rate less the rate of inflation.  Currently interest rates are rising. However after inflation is taken into account there is still ‎no reward in the form of interest for keeping your money in the ‎bank. Compare this to the increased purchasing power when holding gold. Learn more about real interest rates and gold:  Real interest rates in New Zealand | What can they tell us about when to buy gold

• Mine Supply Has Peaked (Scrap Gold Supply Was Down in 2021)

While up in 2021, mine supply peaked in 2018.

In 2021 scrap supply fell sharply, meaning overall supply was down fell by 1% y-o-y in 2021, “the second successive year of declines and the first consecutive fall in more than a decade“.

With many gold mines due to reach the end of their life in the coming decade, gold production is not likely to increase significantly in the coming years. If it just stays relatively flat and if demand then continues to rise, prices will likely continue to rise too.

• Chinese Are Likely Much Larger Holders of Gold Than They Declare

Chinese haven’t reported any addition to their official gold reserves since 2019. For 10 months in a row up to September 2019, the Chinese central bank added to its reserves. And despite China being the largest miner of gold in the world, it is illegal to export gold from China. So what gold is mined in China, stays in China. This interesting report outlines why China likely has much much more gold than their official 1948.31 Tonnes. As the report mentions, eventually the Chinese may announce their true gold reserves, and that may have a significant impact on the price when they do.

• Central Bank Buying Pushes Global Gold Reserves to Almost 30 Year Record

Central banks turned from net sellers to net buyers of gold in 2011. In recent years these have included Russia, South Korea, Mexico, Kazakhstan, Ukraine, Sri Lanka, Philippines, Turkey and China. “Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.” Source. 

Word Gold Council data showed that central banks were net buyers of gold for the twelfth consecutive year in 2021.

Central bank buying rebounded and developed markets re-joined the fray
Central banks added 463t to global gold reserves in 2021, 82% higher than 2020
This pushed global gold reserves to just under 35,600t, their highest for almost 30 years
Developed market central banks were also among the notable buyers.

Central banks are looking at gold as an important diversification tool during uncertain times. On top of this, the recent US and western sanctions against Russia has shown other nations that gold is also an attractive alternative to the U.S. dollar. More central banks are now likely to look to further de-dollarize their holdings.

Read more about central bank buying, particularly in the eastern hemisphere:  Why Does Gold Demand Remain Strong in the East? and Why is Russia Selling US Treasuries and Buying Gold?

• Reasons to Buy Gold in New Zealand Now

Here’s 7 factors that will help you determine if now is a good time to buy gold in New Zealand: Is Now a Good Time to Buy Gold in New Zealand?

Why Buy Gold? Here’s Some Timeless Reasons

On top of the current reasons above, there are also a number of what you could call “timeless” reasons as to why to buy gold:

• Why Buy Gold Timeless Reason No 1: To remove some of your wealth from the banking system

Gold is the only financial asset that has no counter-party risk. Physical gold in your possession has no debt obligation, so there is not someone else on the other side of the trade whom you rely upon to remain solvent. Learn more: Why Gold Bullion is Your Financial Insurance

Why Buy Gold Timeless Reason No 2: Protection from devaluation

199568_squirrel_with_golden_nuts
“Squirrel” away some gold and become your own central bank

Paper currencies have steadily been losing value over the past century. Precious metals “store of wealth” characteristics offer protection against government devaluation of currencies. Be they of the slow and steady kind by inflation of the money supply, or overnight devaluations by government decree.

Why Buy Gold Timeless Reason No 3: To become your own central bank

In case you didn’t know the Reserve Bank of New Zealand has no gold reserves, so don’t expect any help from them in terms of maintaining the purchasing power of the NZ dollar. Buy gold and become your own central bank instead. For more on this see: Why You Should Become Your Own Central Bank – Even if Your Nation’s Central Bank Has Gold Reserves.

Why Buy Gold Timeless Reason No 4:  Protect your purchasing power with history’s best ever store of wealth

An often quoted point is that a fine toga and sandals in roman times cost an ounce of gold. Today an ounce of gold still buys a fine mens suit and pair of shoes. But, the same can not be said with any fiat or paper currency of only 100 years ago. $20 may have bought a suit in the early 20th century.  It doesn’t buy much more than a couple pairs of socks a century later.

Why Buy Gold Timeless Reason No 5: Every fiat (government decreed) currency has eventually gone to zero throughout history

Today we are in the unique situation where every currency on the planet is a totally unbacked fiat currency. And history has shown that no fiat currency lasts forever.  So, if a few thousand years of history is any indication, then buy gold as it can’t go to zero and will always be worth something. Learn more: No Fiat Currency Lasts Forever – What About the NZ Dollar?.

Why Buy Gold Timeless Reason No 6: Used as money for millennia

Because gold is a store of value, unit of account and medium of exchange. Learn more about why gold is money: What Good is a Bar of Gold When the Shelves are Empty?

Why Buy Gold? Final Thoughts…

It’s interesting that people have no trouble believing property prices can go up year after year, but struggle to comprehend why it is that gold is rising in price. Even though both are often driven by the same factors such as easy money, low interest rates and expanding debt.

We believe it is paper currency (or digital currency these days) that is in a bubble not gold. That is, because gold reflects the amount of paper currency in existence we can therefore state that there is no limit to how high gold can go. Any future crisis is likely to be met with the same response as we have seen in the past. Where Central Banks the world will create even more currency out of thin air, so the paper bubble can be inflated much higher yet.

What is the Inflation Adjusted Gold Price?

The current inflation adjusted price for gold to reach its 1980 high clearly shows how much upside gold likely still has left. Today gold would need to reach US$3,233.39 just to match the 1980 high of US$850.

Long term CPI adjusted gold price from 1700 - log chart

Source.

How about if we use the CPI figures from Shadow Government Statistics? –  a more reliable measure than the current US government inflation numbers. The 1980 high now becomes $18,159. There is potentially a lot of upside to come in gold.

In fact by this measure gold is almost as cheap today as it was when the current bull market started in 2000. Even more significantly gold is close to the cheapest it has been for 300 years.

Long term SGS alternative CPI adjusted gold price from 1700 - log chart

Source.

For more on what price gold could reach check out: How Do You Value Gold | What Price Could Gold Reach?

So you can see there are still plenty of valid reasons as to why to buy gold.

If you agree and would like to buy some gold bullion in 2022, then head on over to our online gold shop to check todays indicative prices to buy gold now.

Or more information on the process of how to buy gold see: How to Buy and Invest in Gold >>

Can you think of any other reasons to buy gold? Share them with us and other readers – Leave a comment below!

Read more: When to Buy Gold or Silver: The Ultimate Guide

Editors Note: Initially published on 26 September 2012. Last updated 11 May 2022 to include new CPI adjusted gold price charts and updated reasons to buy gold now.

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25 thoughts on “Why Buy Gold? Here’s 15 Reasons to Buy Gold Now in 2022

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  2. Gerry says:

    Hi there, Good reasons, may they be oft repeated. Another one is that, at this point at least, there is no tax to pay when selling, or GST… it is possible to “hide” ones wealth in precious metals. Its not officially money right? There is no need to declare it in any way. I’m just another conspiracy nutter with dreams of Gold but no “real” digits in any bank computer; no need to bother with me…thats how I like it!

    Keep up the good work!
    Gerry.

  3. admin says:

    Hi Gerry,

    Thanks for taking the time to add another very relevant reason – especially for those who prefer to stay “off grid”.

    Cheers
    Glenn

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