Investing in GOLD: Because gold is part of the value of its long history, gold has traditionally been used by investors to protect against stock fluctuations, currency fluctuations, and other market risks.
But as other asset classes, including cryptocurrencies, have greatly appreciated and the price of gold has plummeted over the past year, many investors are wondering if gold still deserves a place in their portfolios. (investing in gold)
Investing in GOLD a Good Idea?
Investing in GOLD: The recent low performance of gold has been affected by several factors, including central bank operations, potential interest rate changes, and widespread inflation, all of which have eroded confidence in long-term secure port assets.
Is there an opportunity to buy gold now that the price of gold has lagged in recent months, or should investors stop buying precious metal? Here is what you need to know:
- The price of gold in 2021.
- Factors affecting the price of gold.
- Is gold still a good inflation hedge?
- Future outlook on gold.
The price of gold in 2021
Investing in GOLD: Investors generally tend to allocate inflation-protected assets in an economic period where prices of goods and services are rising as they are now. Thus the demand for gold has decreased. According to Goldhub, demand for gold fell by 7% year-on-year in the third quarter and by more than 9% year-on-year.
The price of gold is about $ 1,800 an ounce, down about 5% a year, but significantly higher than it was three or five years ago. Although the price may seem low, it is historically high.
Gold broke the record of $ 2,000 in August 2020 and has since fallen about 10%. “Most people have been looking at gold for the past few months, wondering why gold has not risen in the short term if inflation has been rising,” said Joseph Sherman, CEO of Gold Alliance. (investing in gold)
Factors affecting the price of gold
Investing in GOLD: The answer, says Sherman, is rooted in economic policy: “Monetary expansion and stimulus have driven markets by trillions of dollars, crushing fears and raising risky assets such as cryptocurrencies, stocks, junk bonds and real estate.”
As a result, investors are willing to take higher risks to offset inflation. As the price of gold has fallen, investors are turning to other assets such as stocks for higher yields.
Another influential factor in the price of gold is the increase in cryptocurrencies, which may eat up the market share of gold. Much of this weak demand is reflected in gold exchange-traded financial outflows, which continued into the third quarter.
There is an ongoing debate in the investor community as to whether cryptocurrency will act in the same way as the traditional role of gold. Although the value of bitcoin is not fixed, some consider the primary cryptocurrency to be similar to gold due to its stable supply and performance potential. But gold is a tested asset, while bitcoin is a growing asset, which adds to investor risk.
Is Gold Still a Good Inflation Hedge?
Investing in GOLD: Advocates of gold have historically regarded it as a safe port asset that protects purchasing power against inflation during challenging economic periods because it retains its value in the long run despite fluctuations.
Although there is a link between gold and inflation, Mahesh Agarwal, Assistant Director, Acute Knowledge, says that the relationship could deteriorate in the short term due to a number of factors, including bond yields, US dollar volatility and other risks that have a greater impact on gold than inflation. Partners. But gold is likely to regain its inflation-hedge level as the current inflation period continues.
“Experience data shows that the relationship between gold and inflation generally improves during high inflation because fears of devaluation are bringing more investments to safe havens, including gold. As inflation has been rising rapidly recently, the link between gold and inflation is likely to recover.
Future Outlook for Gold
Investing in GOLD: A key factor influencing the future of gold prices is the path taken by the Federal Reserve along with monetary policy.
The central bank is expected to start raising interest rates in 2022, which is a less positive situation for gold. This is because, as interest rates rise, the relative cost of investing in gold increases as it becomes a dividend or interest-free property. In a rising-rate environment, gold may not be an attractive asset for investors to keep in their portfolios, which could affect future investor gold and put downward pressure on prices.
Wade Guenther, shareholder of Wilshire Phoenix, a New York-based investment firm, says inflation and inflation expectations will support the price of gold despite rising 10-year Treasury yields. “Inflation is proving to be more ‘volatile’ than expected and supply chain issues, as well as persistent issues such as rising energy prices, have been shown to be difficult to control.
According to Agarwal, the healthy demand of India and China is a key factor in raising the price of gold.
India’s influence in driving the growth of precious metal is growing, and China is the fastest growing market for gold in the world. According to the World Gold Council, gold buyers in China see the fall in gold prices as an opportunity to buy, which is another factor that supports the price of gold.
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