The past few years have seen a resurgence in the demand for gold as an investment. With the world economy in turmoil, investors are looking for safe-haven assets to protect their portfolios. Gold has long been considered a hedge against inflation and a store of value during times of economic uncertainty. In this blog post, we will explore the reasons behind the current rally in gold prices and why investors are turning to this precious metal in droves.
Gold prices have been on an upward trajectory since 2018. The price of gold hit a six-year high in September 2019, reaching $1,550 per ounce. Since then, it has continued to climb, reaching a record high of $2,067 per ounce in August 2020. While the price of gold has since retreated somewhat, it remains at historically high levels.
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One reason behind the recent rally in gold prices is the uncertainty in the global economy. The COVID-19 pandemic has wreaked havoc on economies around the world, causing massive job losses, business closures, and supply chain disruptions. The response of governments and central banks to the pandemic has been to flood the markets with liquidity, in the form of low-interest rates and massive stimulus packages. This has led to concerns about inflation, as the increased supply of money could lead to higher prices for goods and services.
Gold is often seen as a hedge against inflation, as it is a tangible asset that retains its value over time. Unlike paper currency, which can be printed endlessly, the supply of gold is limited, which makes it a scarce and valuable commodity. During times of inflation, the value of gold tends to rise, as investors flock to it as a safe haven asset.
Another factor driving the rally in gold prices is the weakness in the US dollar. Gold is priced in US dollars, which means that a weaker dollar makes gold cheaper for buyers in other currencies. The US dollar has been under pressure in recent years, as the Federal Reserve has pursued a policy of low-interest rates and quantitative easing. This has led to concerns about the value of the dollar, as investors worry that the increased supply of money could lead to inflation and a decline in the currency’s value.
Gold is also seen as a safe haven asset during times of geopolitical uncertainty. The past few years have seen a rise in tensions between the US and other countries, particularly China and Russia. This has led to concerns about a potential global conflict, which could disrupt the global economy and lead to further uncertainty. During times of geopolitical turmoil, investors tend to flock to safe-haven assets like gold, as they offer a store of value that is not tied to any particular country or currency.
Investors are also turning to gold as a diversification tool. In recent years, there has been a growing awareness of the importance of diversifying investment portfolios. Diversification helps to reduce risk by spreading investments across different asset classes and regions. Gold is seen as a valuable addition to a diversified portfolio, as it has a low correlation with other asset classes. This means that it can help to reduce overall portfolio risk, while still providing potential for returns.
In addition to these factors, there are several other reasons why investors are turning to gold. For one, gold is a tangible asset that can be held in physical form. This makes it a valuable asset for those who are concerned about the security of their investments. Gold can also be used as a currency, which makes it a valuable asset for those who are concerned about the stability of fiat currencies.
The popularity of gold-backed ETFs has also contributed to the rally in gold prices. According to the World Gold Council, gold-backed ETFs saw record inflows of 877 tons in 2020, surpassing the previous record of 646 tons set in 2009. This surge in demand for gold-backed ETFs has helped to boost the price of gold, as investors seek exposure to this precious metal.
While the current rally in gold prices may seem like a boon for investors, it is important to remember that gold is a volatile asset. Its price can fluctuate rapidly in response to a variety of economic, geopolitical, and market factors. In addition, gold does not offer any income or dividends, which means that investors must rely solely on capital appreciation to generate returns.
Investing in gold should therefore be approached with caution and as part of a well-diversified portfolio. Investors should consider their investment goals, risk tolerance, and time horizon when deciding whether to invest in gold. It is also important to consider the costs associated with investing in gold, such as storage and transaction fees.
In conclusion, the current rally in gold prices is driven by a variety of factors, including economic uncertainty, inflation concerns, a weak US dollar, geopolitical tensions, and the popularity of gold-backed ETFs. While gold can be a valuable addition to a diversified investment portfolio, investors should approach it with caution and consider the risks and costs associated with investing in this precious metal. As always, it is important to consult with a financial advisor before making any investment decisions.
In the current context, where inflation is high, and made even more unstable by the war in Ukraine, investors are asking themselves some essential questions. Among these comes first and foremost the profitability of their investments in the medium and long term. In times of inflationary crisis, can gold still be considered a safe haven? We will therefore try to draw up a current assessment of the gold market and try to identify its prospects for development in an inflationary market.
Can gold withstand the inflationary crisis?
If the purchase of gold is still considered a safe-haven investment, it is in particular because of its stability through the ages and crises.
Indeed, gold is a hedging asset. As it does not produce a return, it is considered a protection against inflation: when interest rates are low, investors turn away from bonds which bring them little in favor of gold.
Gold is traditionally considered a good asset for protection against inflation, moreover decor-related to the stock markets, investing in gold thus has many advantages.
This investment also offers the possibility of improving the overall performance of the investment portfolios of all investors while providing them with a certain stability and security of their asset portfolios.
Therefore, the very idea of acquiring gold represents the safest investment for investors to maximize their profits, gain long-term profitability and counter the consequences that rising prices could have on the market. purchasing power of individuals.
Gold could therefore gradually protect you against the evolution of prices on the market and symbolize the first investment in the precious metals market over a long period.
Constant progress Despite The Geopolitical Context
Both from an economic and geopolitical point of view, the current global context calls on central banks and investors to be cautious. The Covid-19 pandemic, then the war in Ukraine, and the slowdown in global economic growth and inflation considerably increased the American, European, and French debts (2,916 billion euros).
Faced with this particularly anxiety-provoking climate, investors are taking refuge in safe values, and this is clearly in favor of gold. The prospects for improvement not being the most obvious, it is clear that this trend will continue in the months to come, and perhaps even longer.
In an attempt to mitigate the deleterious effects of the pandemic, states have “turned the money printing press”. This significant increase in the money supply in circulation had the main consequence of a decline in purchasing power in these currencies and pushed investors towards other safer investments, gold in mind.
Without going so far as to speak of stagnation, the price of the yellow metal has remained fairly constant and has even allowed itself several drops during the year 2021.
How to explain this situation? One hypothesis is that of the attractiveness of crypto assets and that of the actions of certain giants (Tesla; Apple; Google etc.).
Gold should therefore, in the short and medium term, at least continue its stable/up trend and offer good prospects. Over a longer term, specialists agree that the 2020s could even be the best decade in the history of the yellow metal, bringing it close to the $5,000 per ounce mark at the start of 2030.
It is therefore strongly advised to invest now in gold, whatever its form. This will allow you to diversify your portfolio and secure your investments.
Gold remains a solution to consider during this period of inflation. Its stability makes it a very good shield against the depreciation of the currency, thus revealing its full value over the long term. Unlike savings solutions, which bear the full brunt of the loss of the euro, gold often makes it possible to preserve the purchasing power of its holder.