Gold is known to be an excellent investment asset due to its ability to hold its value over time and its qualities. characteristics of indestructibility, portability and divisibility.. Furthermore, during times of heightened market uncertainty and volatility triggered by economic crises, gold bullion becomes the most coveted safe-haven asset: when stocks fall and inflation rises, eroding the value of bank deposits, gold immediately enters the line of sight of investors.
“Gold supply is limited and cannot be increased artificiallyas in the case of paper money which can be created indefinitely”, comment the analysts of Oddo BHF, explaining that “this contributes to the price of raw materials often going in the opposite direction to the price of the action”.
How many bars have been returned during the last financial crises?
Looking at the most bearish markets of the past 50 years, analysts show how the Msci World Index and the price of gold moved in opposite directions: for example, in 1973-74, the Msci lost 34%, while bullion gained 62%; in 1979, the first left 6% on the ground and the second experienced an increase of almost 30%; during the great financial crisis of 2008, the former fell by around 50%. and the second increased by 41%; while three years ago, following the crisis triggered by the outbreak of the pandemic, the former fell by 23% and the latter rose by 41%. Finally, regarding the economic crisis last year, gold gained 7% in euros, while Msci lost 13%.
Here are the reasons for a further rise in the price of gold
Central banks have been buying more and more bullion in recent years: “the freezing of Russian foreign exchange reservesdenominated in euros, Swiss francs, pounds sterling or yen, has shown that keeping gold reserves in one’s own country can be useful if one has to pay for imported goods”, commented Oddo BHF. The World Gold Council recently announced that gold reserves held by central banks reach record highs and the main buyers are precisely the countries that want to be less dependent on the evolution of the star currency, such as Turkey, Egypt, Iraq, India or Argentina.
We must not forget inflation: the more it increases, the more bank deposits lose value. In addition, in a context of high inflation, the costs of extracting the raw material increase, which favors the rise in the price of ingots. “In our opinion, a gold allocation of up to 10% in a purely equity portfolioand proportionally less in a mixed portfolio, can therefore have a stabilizing effect on the portfolio’s return,” advise the experts at Oddo BHF.
Gold at the mercy of Fed moves
Following comments from Fed Chairman Jerome Powell last week, the price of gold fell towards $1,800 an ounce, among the lowest levels since the start of the year, to recover on Friday to 1 870 dollars an ounce following the bankruptcy of the Californian bank Silicon Valley Bank. Markets now see US interest rates rise another 50 basis points to 5.6%, to the detriment of bullion which, yielding nothing, loses its appeal as rates rise. “Although the short to medium term outlook looks challenging for goldGiven the prospect of a series of interest rate hikes in the coming months, including one by the end of March, markets pricing in these elevated levels should temper gold’s decline.” , comments Rupert Rowling, market analyst at Kinesis Money. According to the expert, a the fundamental threshold for gold will be the $1,800 level. an ounce, which it is approaching, and any drop below it would stimulate buying activity. “While gold is unlikely to make significant gains, further substantial declines are unlikely to occur,” Rowling concludes. (restricted breeding)