Gold is one of the most traded assets in the financial world, with an impressive volume of 130 billion dollars a day. Not surprisingly, gold has always occupied an important place in the portfolio of millions of investors around the world, as its profitability and stability are envied by many other financial markets.
In the wake of the COVID-19 pandemic, experts have wondered if there is any impact on the relevance of gold as a precious metal for investments and whether it will continue to increase and sustain its value in the years to come.
Regarding the relevance of gold, Robin Tsui, gold strategist at State Street Global Advisors, comments that this metal is governed and remains stable by certain unrelated factors, such as jury demand, investment demand, Central Bank demand, and demand in the field of technology. Apart from this, Tsui adds that gold is not only a good strategy to combat inflation, but it is also an investment starting point for diversification.
Peter Chia, senior strategist at United Overseas Bank comments that gold is one of the most attractive safe assets, as other popular markets such as the investment and fixed income markets have declined considerably in the last six months. In contrast, gold began the year 2022 with a value of $1,829 per ounce, for the month of May it reached a peak in its value, increasing to $2,050 per ounce, and although its value has fallen to the initial value for the month of June, it continues to represent a solid asset to invest in 2022 compared to other markets.
However, as with all other investments, it cannot be guaranteed that the value of gold will increase, especially when gold prices depend on various volatile political and economic conditions. Gold’s value gain is compromised by a number of other factors.
The expert from United Overseas Bank clarifies that compared to how the year began for the gold interest rate, the Federal Reserve Bank has taken a leading role in raising the interest rate from 0% to almost 2%. Peter Chia estimates that by the beginning of the coming year, rates will reach 4%. The intervention of these factors puts gold investors at a disadvantage. Peter Chia adds that another considerable disadvantage that prevents the value of gold from rising is how the dollar has benefited from the Federal Reserve’s rising interest rates.
Speaking of the gold interest landscape in 2022, Andrew Naylor, regional director of the World Gold Council, comments that the variation between interest rates and inflation, combined with the geopolitical crisis of the moment, are the causes of the institutional interest in investing in gold has fallen in recent times. He also adds that the macroeconomic situation the world is experiencing at this time is very particular and has not been seen in the same behavior for 10 or 15 years.
So, with interest fluctuations by the Federal Reserve and the current war in Ukraine, where is gold headed in this year 2022? Robin Tsui explains that despite all the obstacles and changes in the world economy, gold continues to remain above other assets such as stocks and bonds. Tsui assures that there is currently significant demand for gold.
Finally, to summarize the position of gold in the financial market in 2022, Peter Chia adds that gold is a safe asset for investment, but there may be short-term volatility due to the influence of two factors; the increase in interest rates since gold does not pay interest to its investors, and the increase in the price of the dollar, which is negatively related to the value of gold.
However, if short-term volatility and uncertainty are ignored, gold can represent a cunning investment, with a possible increase to $1,900 per ounce by the end of this year and a value of $2,000 per ounce by 2023.
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