While facing traditional investment options Risks Increasingly, this tangible asset, backed by a proven track record of stability, remains a reliable investment option for those seeking to protect their financial future.
Even with everything it offers goldhe still has the opportunity to shine even more.. Here are some reasons why investors should closely monitor gold investments in today’s economy.
Standard prices
A report by Fox Business highlighted five main reasons: The first of which is the “record price” of gold, which recently reached record levels, and has risen by more than 27 percent since the beginning of the year, according to UBS Global Wealth Management, as it is believed that the interest rate cuts by the Federal Reserve last week, geopolitical tensions, and supply restrictions are all factors that boosted the rise. .
Director said Investment In the Americas at UPS, Solita Marcelli:
- We remain the most favorable to gold in our global strategy, with a target of US$2,700 per ounce by mid-2025.
- Despite the rally, we believe gold’s hedging properties remain attractive.
- Besides physical gold, investors may consider exposure through structured strategies, ETFs or through shares of gold mining companies.
- Investors unaccustomed to the volatility of individual commodities may also consider exposure through an actively managed strategy that seeks to generate alpha on comparable passive indices.
Although high prices may seem like a disadvantage, it may be a good time to take advantage of potential price growth in the future, according to the report.
Against the backdrop of rising gold prices, central banks fueled the cost rise as they continued to buy, in a clear shift away from US Treasuries.
This helps provide a solid foundation for the sustainability of gold prices – and an opportunity for investors to benefit from future price growth, a CBSN report said.
Gold as a safe haven
The second reason, according to the report, is treating gold as a safe haven asset. Gold has strengthened its role as a safe haven asset in the current year 2024 due to the ongoing geopolitical tensions in regions such as the Middle East and Eastern Europe, which continue to enhance the state of uncertainty and drive demand for a stable store of value. .
According to the bank Goldman SachsIt has increased Central banks Of its purchases of gold since the dawn of the war between Russia and Ukraine in early 2022, which indicates the role of the yellow metal as a hedge amid geopolitical turmoil.
Goldman Sachs also praised gold as providing “significant value” as a “portfolio hedge against developments such as tariffs, Reserve Bank dependency risks.” Federal (i.e. the risk of undermining its independence), and debt sustainability concerns.”
“It is the commodity of choice for our near-term strategists (the commodity they expect to rise in the short term), and it is also their preferred hedge against geopolitical and financial risks,” the investment banking firm said in an article.
Domestically in the US, the US Federal Reserve’s recent 50 basis point interest rate cut, which dominated headlines last week, has made assets more attractive to investors by lowering the opportunity cost of non-yielding assets. This translates into a weaker dollar versus increased interest in gold and other non-yielding assets, including other precious metals.
With further interest rate cuts expected before the end of the year, this potential interest among investors may increase further.
Hedging against inflation
The third reason among the reasons for attraction yellow metal It’s a hedge against InflationGold is also generally considered an “inflation hedge,” which means that the value of the commodity rises as fiat currencies – such as the US dollar – lose value.
Goldman Sachs has identified gold as the “best commodity” to serve as a “potential hedge against inflation,” meaning that investing in gold means that while the dollars in your portfolio may not carry the same purchasing power as they might during periods of low inflation, gold in… Your portfolio will remain a strong asset.
“Gold is rising because the dollar, euro, yen and fiat currencies are losing value,” Euro Pacific Capital chief economist Peter Schiff told Fox Business earlier this year.
Protecting investment portfolios
Fourth, gold is widely considered a valuable diversification tool for investors hoping to avoid the potential risks of other asset classes that behave differently during market sell-offs or times of economic instability.
For example, State Street Global Advisors, a financial services firm headquartered in Boston, said the precious metal has “the ability to protect against… Risks Maximum” and serves as a tool to “reduce investment portfolio withdrawals and fluctuations.”
Gold’s low correlation with other assets such as stocks and bonds means that its price moves independently, meaning that if one other area performs poorly, gold can stay afloat and act protectively.
He mentioned World Gold Council Of gold’s role as a complement to stocks and “broad-based investment portfolios,” he said, “Gold has historically provided returns, diversification, and liquidity. Together, these properties mean that gold can materially enhance risk-adjusted returns.” It also carries other benefits, including no credit risk.
Scarcity
The fifth reason is related to the scarcity factor, as gold is also finite, which means that it cannot be printed or reproduced indefinitely like paper money. It can only be extracted in limited quantities, creating permanent supply constraints that help maintain its value. Another obstacle added to the mix is high extraction costs.
As gold deposits become increasingly scarce, mining companies must do more to finance technology and exploration to keep the supply going, foreign exchange trading company OANDA says.
At the same time, the growing demand for the precious metal for its many uses – jewelry, decoration, and even growing interest in its use in electronics and medical devices – fuels this high demand despite scarce quantities.
“Right now, we have a supply and demand imbalance,” Sound Planning Group CEO David Strzezewski said during an appearance on Fox Business in June.
He continued, “These banks are buying gold and silver at record levels today,” adding that a global slowdown in the production of precious metals is expected, leading to greater scarcity.
The most important key factors
The economic expert, Ali Al-Idrissi, explained in his interview with the “Eqtisad Sky News Arabia” website that:
- Gold was and remains a highly attractive commodity for multiple economic and historical reasons.
- Demand for gold continues to be strong because it is a store of value, which makes it a safe haven in times of economic and political crises, as investors turn to it to protect their wealth from inflation and economic collapses.
- Gold, thanks to its long history as an asset that holds its value, enhances confidence among investors as a reliable option to rely on in times of uncertainty.
- The scarcity of gold increases its value over time. Gold is a limited natural resource and difficult to extract, which makes it a reliable long-term investment.
- Gold also has the advantage of relative stability compared to other assets such as stocks or digital currencies, which makes it an ideal choice in light of market fluctuations.
Al-Idrissi added that gold is characterized by being an asset that is not directly linked to the movement of other financial markets, as it often moves in the opposite direction to those markets. When stock or currency prices fall, gold tends to rise, making it an excellent hedging tool to diversify an investment portfolio. This is not limited to the investment aspect only, but the industrial and decorative uses of gold, especially in the electronics and jewelry industries, contribute to increasing the demand for it.
The economist touched on the factors that support the continuation of this trend towards gold, including: Global inflationas rising inflation in many countries affects Purchasing power For paper currencies, while gold maintains its value, making it an effective tool to combat inflation.
He also stressed that geopolitical turmoil and international tensions are pushing investors towards gold as a safe haven. He also added that the lenient monetary policies adopted by central banks, such as quantitative easing, increase concerns about the stability of fiat currencies, which enhances the attractiveness of gold as a stable alternative. In light of the sharp fluctuations that other markets may witness, gold remains a preferred choice for investors looking for stability.
Al-Idrissi explained that this continued demand for gold may affect the rest of the assets, as during periods of instability, capital is likely to leave other financial markets, such as stocks, and head towards gold, which may lead to a decline in stock prices. As for digital currencies such as Bitcoin, although they are considered a digital haven, they are much more volatile than gold, which makes gold a safer option for traditional investors looking for a safe and low-risk investment.
Geopolitical tensions
Financial markets expert, Hanan Ramses, when speaking to the “Eqtisad Sky News Arabia” website, indicated that
- The continuation of negative geopolitical events, including escalation, assassinations, and wars in the Middle East and around the world, makes gold the first safe haven.
- Countries, like individuals, may face bleak liquidity scenarios under these conditions, which is why we are seeing an increase in gold reserves in many countries.
- With the start of lowering interest rates in the United States of America, this will lead to the weakening of the dollar against the basket of currencies, which prompted many investors, whether individuals or countries, to switch from purchasing US Treasury bonds to gold, which contributes to pushing the prices of the yellow metal to levels New standard.
She also added that the large shift towards gold enhances countries’ reserves, as gold is a store of value that helps confront the increasing risks of inflation and wars, noting that this reserve can be sold when needed to support the general budget.
She explained that the current fluctuation in oil prices as a result of the discrepancy in supply and demand and the pressures present in this context, in addition to the entry of new players in the market, led to a decline in prices, which negatively affected the budgets of countries that depend on it. Here, gold emerges as a solution that helps stabilize the economy of these countries.
Store value
Bilal Shuaib, Director of the Roya Center for Studies, explained to “Iqtisad Sky News Arabia” website that:
- There are many reasons why gold is a highly sought-after strategic commodity, as it is considered a store of value that people turn to every economic cycle, which usually lasts between two and three years.
- Every time you are exposed Markets During periods of economic fluctuations, we witness a rise in gold prices, as it is considered a safe haven in the face of crises.
- Alternative investments, such as stocks, bonds, or even savings pots through banks, fluctuate constantly, rising and falling depending on general economic conditions, whether during recessions or booms. In contrast, gold remains valuable and stable, especially in times of economic and geopolitical crises. This is what we are currently witnessing in light of the unstable conditions, as it is approaching Gold price Globally from the level of $2,700 per ounce, it is expected to witness a further rise at the beginning of next year as a result of many political and economic factors.
Shuaib added that Federal The US has begun to retreat from the monetary tightening policy and shift towards an accommodative monetary policy by reducing the interest rate by half a percent, and this policy is expected to continue globally. Shuaib attributed this trend to the state of economic recession that began to appear on the horizon due to the previous tightening policy, in addition to the rise in debt to unprecedented levels.
He pointed out that Geopolitical tensions The military increases the attractiveness of gold as a safe haven, in light of the continuing war between Russia and Ukraine, which greatly affects the global economy, as the two countries constitute about 30-35 percent of the global grain trade. Russia’s use of gas as a pressure card to enhance its economic and political gains increases instability in the markets. In the Middle East, the cycle of conflicts and tensions is increasing, from the conflict between Israel and Hamas to the Houthi threats to the Bab al-Mandab Strait, which directly affects the movement of global trade. Also, tensions related to Yemen, Iran, and Hezbollah increase uncertainty in the region, which has a negative impact on countries’ economies, including Suez Canal revenues.
Based on these circumstances, Shuaib stressed that gold will remain the safest and best alternative compared to other investments, expecting its price to continue to gradually rise in the near future, as it is the most stable amid these economic and political challenges.
