This year, gold will reach its record highs. Experts believe that high interest rates will not threaten it on the way
11. 04. 2022
In addition to the terrible fates of the local people, the war in Ukraine raises the question of how people in the rest of the world will live. The exacerbated geopolitical situation significantly contributes to the depreciation of money and extremely rapid price increases. In a webinar for ETF Stream, Anthony Bamber of The Royal Mint summed up how gold protects our savings in such a difficult time and how to make the most of its services.
According to Bamber, there are currently many unknowns in the economy. Therefore, investors are leaning towards commodities rather than anything else. In particular, gold is now being used as an investment to protect the savings of its investors in a bad economic climate.
“At the end of February, we saw the gold price jump by about 6%, which is the biggest monthly increase since May 2021,” Bamber described, while adding that gold had returned to its peaks since Russia invaded Ukraine. However, the escalation of the conflict itself was not to blame. In his opinion, this has been rather accelerated by the two main drivers of the gold price, i.e. inflation and the economic crisis.
Does gold work as a protection against inflation?
We have seen that gold works more than well as a protection against inflation in the past. Anthony Bamber confirmed this in the webinar. In a case study, he showed that gold brought its investors an increase of 14% when inflation rose to 3%. Investors therefore made a significant profit on their deposited money. There are still many myths about the role of gold in the period of inflation, which Eric Strand, CEO of AuAg Funds, has tried to dispel.
“People think high rates are not good for gold because gold doesn't have dividends,” Strand said. “But if you look at the last two cycles, gold has had excellent returns even in periods when interest rates started to rise, but also later when rates had to be decreased,” he commented on the myth. In his opinion, the challenge for gold is the debate over raising rates rather than raising itself.
According to Strand, gold is an ideal investment for people who want to secure their savings and protect them from depreciation.
And what will the gold price look like?
High rates and inflation raise the question of whether it is appropriate to invest in gold and what the precious metal will bring us in the near future. Heng Koon, an investment strategist at UOB, one of the largest banks in Asia, also answered the question in an interview with Bloomberg.
“Inflation is a real problem at the moment and we hear about it from all sides. The companies have a problem with their supply chains, which the covid and the Russian invasion of Ukraine have exacerbated,” Koon described the problem. In his opinion, there is no need to worry about a major slowdown in economic growth, but the question is who will be able to afford the goods.
With the growing need of investors to defend against inflation, the demand for gold will also continue to grow, but its supply is relatively limited due to the fact that some companies have stopped providing Russian ingots and coins. As a result, gold could reach the level of USD 2,200 per troy ounce later this year. The price of an ounce gold bar of Lady Fortuna could thus approach EUR 2,400.
These predictions suggest that the precious metal will continue to represent a step into a safe harbour and a way to protect your money from devaluation in the current crisis. Higher interest rates are unlikely to actually depress the price of gold and the desire to protect savings will bring another year of gold to investors.