The downtrend in gold and gold miners has returned. Occasionally, there are glimmering signs of hope, but the sellers quickly return.The relentless decline began shortly after the commodities spike in the spring that followed Vladimir Putin's invasion of Ukraine.The author of your work shrugs.
Gold is supposed to rise during war, right?
In times of inflation, isn't it the go-to asset?It appears not. However, gold's performance has not been as bad as the headline numbers suggest if one views it as just another currency. Although it has not performed as well as the dollar, it has performed better than the pound and the euro. Even though gold is listed in US dollars, British investors don't care about the dollar price. All that matters is the sterling gold price, even if you pay pounds to buy it and eventually sell it for pounds. Gold's value in pounds over the past ten years is shown in the chart below.
In 2014 and 2015, gold cost between £700 and £800 per ounce (oz), and its current price is just shy of £1,475 per ounce. It is still clearly in a long-term uptrend and is not far from its highs of around £1,575/oz.To put it another way, gold has done its job and protected investors from the mess that sterling has become over the past five years. The ideal setting for gold, but the real goal is for gold to appreciate against all currencies.
Capital that is panicking has been moving to the US dollar, which has been taking up the safe space that would normally belong to gold. The prospect of higher yields on US assets has made the dollar more appealing, as the US is tightening its monetary policy faster than the UK, Japan, or Europe. The US is leading the rate-rising cycle, and the dollar will continue to be strong until Japan, the UK, and Europe start tightening as aggressively. The best macroeconomic conditions for gold are weak equity markets and yields on government bonds that are lower than inflation expectations. We currently have the first, but not the second. Inflation expectations for the longer term are still below 3%. Capital would look for gold as an alternative if they were at 8% or 10% but rates were 5%. When this occurs, the so-called real (adjusted for inflation) interest rates fall below zero. You want to be at a point where central banks are reluctant to raise rates but inflation will not go away; in the United States, at least, that situation does not exist.
Yet. How long will this inflationary episode last?
How much will rate hikes by central banks be? If we want to buy gold, we need to know the answers to these questions. As lower prices for oil and metals spread through the economy, inflation may slightly decrease, but I believe we will always remember inflation numbers like they were before Covid. Another question to consider is whether gold is a physical asset that is having trouble adjusting to the digital age. Gold may be the oldest material on Earth. It is believed to have originated in supernovae and the collision of neutron stars and was present in the dust that formed the solar system four and a half billion years ago. It hit Earth via asteroids, which subsequently bombarded the planet. It is the most malleable material, but it is also the most durable, and it is believed to be indestructible. Gold from billions of years ago is still present in its entirety.
Gold cannot be destroyed, but you can batter it into a film that is only one atom thick. Consequently, it is believed that all gold that has ever been mined, with the exception of gold that has been dissolved in aqua regia, is still present, even if lost. Gold has been such good money because of this.It endures. However, value today is almost entirely digital. Digital currency is itself: Only 2% to 3% of Western money is actually cash. Most of the bond market is digital. Software, intellectual property (IP), and cryptocurrency all have value in digital form. In addition, the majority of Western growth over the past 30 years has been there.