Investors stressed by stock market ups and downs and worried about rising inflation can buy bullion as a haven.
Gold has lost its appeal since the price peaked at $2,084 an ounce in August 2020, amid the backdrop of many world powers slowly coming out of the Covid-19 pandemic.
However, right now, investors are starting to believe that it is the best time to buy gold because many people have turned away from gold which has caused the price to drop a lot and you can buy it at a bargain price. Then, just wait until the wind changes, the gold market is jubilant again and the price will go up.
It can be said that this precious metal has always done a good job as a traditional haven, increasing asset value for investors when they abandon the volatile stock market.
The breakthroughs in the Covid-19 vaccine last November were a great catalyst for the stock market, as investors rushed back to risky assets, but bad news for the stock market. with gold.
The price of gold fell to just $1,685 an ounce on March 31, 2021, 20% below its peak in August 2020.
Since then, the price has gradually recovered. On May 21, 2021, spot gold price reached 1,877.7 USD/ounce, gold futures in June 2021 reached 1,879.9 USD/ounce. However, these prices are still far below last year’s highs.
There are two reasons why the price of gold will rise further and we should buy gold
Firstly, precious metals are a “traditional shield” against inflation – inflation is trending back.
Inflation in the US in the first week of May 2021 increased to a shocking level of 4.2%, much higher than the forecast of 3.6%. Inflation in the US is likely to rise even higher after President Joe Biden unleashed another $6 trillion in economic stimulus.
Gold doesn’t sparkle right now, but so it’s an ideal time to buy, especially if you want to hold it for the long haul.
Secondly, the price of gold usually rises when the stock market crashes. The S&P 500 index of leading US stocks crossed 4,000 for the first time in early April but is now considered too high as data on job growth in the US disappointed and threatened. Inflation will increase even more.
In recent days, US stocks fluctuated very strongly, and gold continued to go up, especially before and after the Open Market Committee of the US Federal Reserve (Fed) released the minutes of the meeting. April meeting, in which some Fed officials expressed the view that they need to be ready to consider changes to monetary policy based on the continued strong economic recovery.
Several members suggested that, if the economy continues to make rapid progress toward the Open Market Committee (FOMC) goals, then at some opportune time in policy meetings. Shortly, it may be necessary to start discussing a plan to adjust the pace of asset purchases, the minutes of the meeting said.
What do the experts say
Most advisors recommend keeping 5 or 10% of your total assets invested in precious metals
According to Fawad Razaqzada, market analyst at Think Markets, gold has not always fulfilled its traditional role of protecting investors against rising inflation and stock market volatility.
The big downside of holding gold is that it doesn’t yield interest or dividends, as opposed to cash, bonds, or stocks. But recently, that is no longer an obstacle, when rival safe-haven “paradise” such as cash and bonds bring almost no return for investors.
Meanwhile, rising inflation sent US bond yields up, with the yield on the 20-year Treasury note tripling over the past year to 1.69%, and many analysts’ volume is forecast to continue to increase to 2.5%.
As investors received higher yields on bonds, this made gold less attractive, “this increases the opportunity cost for holding gold. As a result, it has been selling off a little along with risk assets,” Razaqzada said.
Oddly enough, gold currently has something in common with major US tech stocks like Amazon, Alphabet, the owner of Google, Facebook, and Netflix. None of these companies pay dividend income, as these stocks do not pay dividends, while Apple and Microsoft have returns of less than 1%.
He believes the world will see “good inflation”, due to economic recovery, not “bad inflation” – signaling a loss of confidence in the world’s major currencies. Only “bad inflation” drives up gold prices, Menke said.These two very different asset classes could suffer equally if bond yields continue to rise, said Razaqzada.
“Given our constructive economic outlook, for the US as well as globally, we do not expect safe-haven demand to return anytime soon,” said Carsten Menke, head of next-generation research at private bank Julius Baer.
However, Mr. Menke was cautious when predicting silver, and said: “as compared to gold we believe it trades on elevated levels.”
For him, there is another reason safe-haven investors ignore gold because they have a more attractive ‘toy’, which is those that play with cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and others. Crypto fans say that the asset class has now invaded gold’s territory as a store of value, inflation-resistant, and much more exciting.
Adrian Ash, research director at BullionVault, said demand for gold has always tended to slow after last year’s record inflows, although jewelry demand in Asia has recovered and will continue to grow. while cryptocurrencies get all the attention.
Gold may be out of fashion these days, but it could be an opportunity, Mr. Ash said. He added: “Longer-term investors wanting to spread their risk could do well to consider adding a little bullion to their portfolio at these lower levels.”
However, Jason Cozens, chief executive officer of Glint, a bank that allows customers to use gold as money, warned that the digital currency has at times of strong appreciation but is very vulnerable when central banks tighten currency, and then gold will benefit.
“While the value of gold can decline over time, it has proven its long-term reliability, is far less volatile compared to cryptos and many view it as a vital asset to hold in times of uncertainty.”
In general, there is one truth that never changes. That is, keeping some gold in your portfolio provides psychological comfort during times of market stress.
Meanwhile, Rhona O’Connell, head of EMEA and Asia market analysis at StoneX Group, also believes that gold has upside potential, as the post-Covid-19 recovery still relies on stimulus government and the outlook remains uncertain.
According to the International Monetary Fund, there is “a tremendous amount of liquidity still looking for a home” with a whopping $12 trillion in stimulus being added to the central bank’s balance sheets, and a portion of it. some of this will go to the gold market, in O’Connell’s view.
William Ryder, an equity analyst at Hargreaves Lansdown, said the price of gold has always been difficult to predict because it is an “inert lump of metal” that has no industrial use, unlike silver, and that’s been the case so far. nowadays.According to Ms. O’Connell, as consumer confidence in the West increases, so does demand in the Gulf, South Asia, and Southeast Asia. Consumers are still increasing spending, despite the serious Covid-19 pandemic in India.
Long-term investors looking to spread their risk might consider shifting some assets to gold when prices are cheap. “On the one hand, inflation worries and persistent economic uncertainty are likely to support prices. On the other, a smooth recovery and low inflation could prompt investors to invest in productive assets instead of inert lumps of metal,” said Mr. Ryder.
As well as buying physical gold and jewelry, you can put money in a gold trust. Look for a place where you can buy physical gold, rather than complex derivatives designed to track price movements, such as the SSGA SPDR Gold Trust – which has grown 45% in 5 years but is down 6% in the past 12 months; or iShares Gold Trust, said Russ Mold, a chief investment officer of online asset platform AJ Bell.
Alternatively, you can invest in shares of gold mining companies in the hope of generating higher returns and some dividends as well. Shares of the Van Eck Vectors Gold Miners ETF are up 58% in 5 years despite a 3% drop in 12 months.
The Van Eck Vectors Junior Gold Miners ETF, which targets small but high-potential gold miners, is down 6% in five years but up 18% in the past year.
The BlackRock Gold & General precious metals swap is also very popular. The fund’s shares have risen 50% in five years, but are down 2.7% in the past year.