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The COVID-19 pandemic has increased uncertainty in global markets. This caused heightened interest in a stable asset that allows preserving savings in the long term — gold. Due to the growing demand, the valuable metal has reached the highest figures in history. The events of the past year and the stability of the exchange rate in 2021 suggest that the yellow metal will continue strengthening its positions in the future.
In 2020, gold once again proved to be one of the most effective means of preserving the savings invested in it. Given its positive dynamics, the valuable metal stood out favorably against the background of other assets that are rapidly falling in price. In August, the price of gold reached an all-time high — $2,069 per ounce.
The continuing interest from depositors confirms the fact that physical gold is an important strategic asset that allows securing personal savings while guaranteeing their preservation.
In the chart: gold rate firmly retaining high positions from January 2020 to February 2021.
Gold is one of the few assets that is not subject to economic decline. The rapid rise in inflation in 2020 led to the collapse of the investment market, but had a positive effect on the dynamics of the gold rate. Historically, when inflation is high, the price of the precious metal typically goes up. The World Gold Council* experts established that in the years when inflation exceeded 3%, the price of the yellow metal rose by 15% on average.
According to the Oxford Economics research, gold maintains strong positions even during the period of economic recovery. An increase in the purchasing power of the population boosts the demand for the valuable metal. It is a universal asset, which is characterized by stability and resilience both during a crisis and during a period of financial recovery.
As of March 1, 2021, the price of an ounce is $1,758.
Market surveys have shown that the global economic recovery in 2021 could trigger a new wave of demand for the precious metal. This is especially evident in India and China — the largest consumers of gold in the world. For example, in India, the demand for gold traditionally rises during the height of the wedding season. In China, the asset is bought to protect savings against the backdrop of economic instability and trade conflicts with the United States.
Central banks also constantly demonstrate high interest in the valuable metal. Gold remains the main foreign exchange reserve of most countries, which, combined with low interest rates, makes the asset even more attractive. A striking example is the Bank of Russia, which in recent years has been intensively building up reserves of the yellow metal to expand its gold and foreign exchange reserves.
In the chart: data on the gold exchange rate in the period from 2008 to 2021, as well as the forecast of growth dynamics until 2022.
The future lies in gold
Analysis of economic trends enables to identify the main factors that can increase the demand for physical gold in 2021. In conditions of a market downturn, interest in physical gold as a stable, reliable asset will continue to grow.
Will Rhind, an analyst at the American company GraniteShares, is confident in the prospects of the gold market. According to the expert, the only way to preserve savings during the exacerbation of the global crisis is to develop a competent strategy for protecting savings. The choice of a proven, long-term investment will help minimize risks.
Gold is a stable asset that maintains its positions
regardless of the economic situation!
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*The World Gold Council — the market development organization, founded by the world’s leading gold producers to stimulate demand for gold.