This is a question that many people have been asking themselves lately and it is probably due to the fact that the performance of gold through the years has led us to expect something different from the reality that we are experiencing today.
If we recall the economic crisis that occurred in 2008 where there was a dramatic fall in the market due to the mass liquidation that occurred in the New York stock exchange, bought about by the credit crunch, we can also remember how this crisis brought out the shine of gold in the world of investments. For years prior to this crisis of 2008, gold had been presenting a bullish trend that seemed unstoppable and which faced its first obstacle much later in 2011.
It is because of this event and others throughout history that many expect that as the world faces a new economic crisis of high inflation and looming recession, gold would be trading at much higher levels.
Something that we have to keep in mind is that although gold has not had the rise that many of us anticipated, the precious metal has outperformed most major assets so far in 2022 according to the WGC. Reports indicate that even inflation-linked bonds issued by the US and other countries have not fared as well as gold this year and despite the fact that many investors are disappointed with the current price, its behaviour has been fairly predictable and in line with demand.
Currently, in the aftermath of the Covid-19 pandemic and now in the midst of the Ukraine crisis, the price of gold is being shaped by uncertainty. Significant investment risks geo -political concerns and high inflation have all come about as a consequence of these two major events that have occurred consecutively.
Another influencing factor is how the FED and other central banks, in their eagerness to mitigate inflation, are doing everything they believe is necessary to achieve this end through bonds and by raising interest rates. However, there are many investors who do not agree with the measures being taken or at least do not have confidence that inflation will be mitigated through the measures that have been implemented.
The yellow metal has actually performed well so far this year when compared to other assets.
The below chart shows a number of key markets performances for the first three quarters of 2022 and demonstrates why we believe that gold is fulfilling its role as a wealth protection asset within investors' portfolios.
UK investors will note that despite Gold’s depreciation in US dollar terms, Gold is up over 11% in GBP. This highlights the importance of currency evaluation when considering an assets performance within an individual’s portfolio. US dollar investors will note that compared to both equities and cryptocurrency markets gold has performed admirably, showcasing its qualities as a store of value and safe haven asset.
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