Get to know all about the history, current role, and future perspectives of global gold market.
INSIGHT
In the age of augmented reality, cryptocurrency, and emerging quantum computing, there still remains a thing that has been around for thousands of years. Something that served as the backbone of the economy for countless generations of kings, bankers, and entrepreneurs. See full report by Kyiv Consulting on perspectives of gold market in 2021 and beyond by clicking on the button below.
From 2010 to 2019 the demand for gold stayed on a virtually identical level. A 1% drop in demand in 2019 happened due to the rise of gold-backed Exchange Traded Funds, thus, not signifying the gold’s loss in popularity in and of itself. Moreover, the first quarter of 2020 showed sharp rise in demand, reaching 55 billion USD — the highest it has been since 2013. Gold-backed ETF’s demonstrated similar dynamic, surpassing their 4-year maximum.
The global pandemic demonstrated once again that in the time of crisis, people retreat to time-tested, reliable solutions. Western retail investors pumped up the demand for gold coin by staggering 36%. Naturally, a worldwide economic slowdown meant that consumer market for gold products, the jeweller, would follow the general trend. For instance, the gold demand of China, the world’s biggest consumer of jewellery, dropped by 65% in Q1 2020.
Jewellery makes up for 50% of the global gold demand, but its demand volumes usually decline during crises. Following the global financial crisis of 2008 (Q2 2010) and in the beginning of the COVID-19 pandemic (Q1 2020) the demand on jewellery sharply declined. This dynamic should not come as a surprise, as jewellery is one of the traditional luxury products, which all have a tendency to sink in demand during the crisis.
Despite all the mentioned events, the global investment portfolio has less than 1% of gold. Yet, gold has delivered positive returns over the long run, outperforming the key asset classes. For the last 50 years, average returns of Gold reached 10.6%, outpacing the US CPI. Moreover, gold is one of the most effective commodity investments in terms of volatility, outperforming other metals, individual commodities and broadbased commodity indices.
The advantages of gold as investment make it a great asset for the times of economic uncertainty. The gold is able to:
Generate long-term return;
Provide liquidity with no credit risk;
Act as a diversifier and mitigate losses;
Improve overall portfolio performance.
INSIGHT
Due to gold’s hedging qualities, it is expected to see the increase in its price in 2020. As current supply may experience decreases due to COVID-related problems, the price would naturally rise as a result of simple supply-demand law. Central banks also continue accumulating gold, thus, supporting the increase in price. Gold gains a better reputation among investors as prices on most commodities, except for gold, decline.
However, not everything is so unambiguous. While successfully restoring the production rates after initial impact of the lockdown, gold mining can face other challenges. One of those is connected to climate risks as consumption and recycling of gold accounts for 1% of total CO2 emissions. In this way, new climate regulations may negatively impact the prospects of production, which will make gold industry fail to meet the rising demand from investors.
Another source of risk is related to alternative currencies and government regulations of capital. Bitcoin’s stock to flow ratio is growing to Gold’s level. High level of this ratio makes asset much more resistant to market conditions by decreasing inflation rate. That might make cryptocurrencies more attractive for investors than gold.
News impact every single aspect of the market and gold is not an exception. As a result of pandemic, several countries, for example, Russia and China, demonstrated pro-gold behaviour, increasing their gold reserves. The forces that have held the current fiat system together look fragile and could collapse in the 2020s. That will start to lead to a backlash against fiat money and demand for alternative currencies, such as Gold or crypto could soar. Coronavirus has influenced the fiat currencies and may bring forward the eventual reintroduction of gold and gold standards. Therefore, the future of gold as of a reinvented basis of the world economy is still in question.
To get more insights into the prospects of gold investment, read the full report from the experts of Kyiv Consulting by clicking on the button below.
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