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Gold gained and global equities fell by more than 1 per cent in Oct. first week

Gold gained and global equities fell by more than 1 per cent in Oct. first week
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Global economies reached three month low in October first week as US dollar retreated from 7 week peak. Gold edged as some investors sought refuge in the yellow metal as the markets tumbled, mostly, due to the increase in bond yields. With the new market trends, fund managers are increasing gold percentage, even though, the rise in interest rates have increased the appeal of bonds, while, gold does not pay any interest. Higher yield and increasing dollar prices is against gold.  

Experts believe gold is a traditional investment, which was there, even before, paper money, and will remain, forever, in demand, as a key investment tool.   Gold can be traded in 24 hours or held for years. It is useful industrial metal and fungible. One can easily identify the true metal and trade in US dollars. Dollar and gold are always linked, although, there is no direct relationship.

Gold has a physical value and it can work as hedge against inflation, whereas, in case of currencies, in extreme conditions of inflation, it loses significant values. During market turmoil investors buy gold, and sell it when the forex and stocks are doing well.  

Gold attractiveness was reduced in the year 2018 due to the improvement in US economic growth, normalization of the monetary policy and stronger dollar. Some of the fund managers believe gold is still important due to a number of factors.

  • In the past decade, central banks bought trillion of dollars of government securities to increase liquidity and the consequence of increasing the holdings of precious metals, cannot be predicted. If all banks continue to gather currencies, global liquidity will turn negative. Previously, recession and bear markets trends were witnessed due to central bank tightening. This situation favours gold that did well during the previous economic turmoils.
     
  • Gold offers ways to escape market turmoils and crisis.  If one looks at charts of gold, the gold bought in 2003, 2009 and later 2015, were able to get early growth. Some investors believe this is the right time again, to invest in yellow metal to gain fast.   It is advised to get gold to silver ratio at 80 or more.
     
  • The highest amount of gold has been bought by central banks, China, Turkey, Russia and India, where, the increase in gold reserves shows distrust towards dollar or the monetary system as a whole. There have been accusations made by politicians of manipulation of currencies, which supports gold as it cannot be manipulated or modified by local strategies. Investors are advised to hold at least 10 per cent gold in their portfolio.
     
  • Debts are rising across global markets where new market debts in the form of student loan or government debts raise risks. Increase in rates can make it difficult to service the debts as the rise in rates will increase total debt value to more than $1 trillion in the next year.   

To know more about gold and forex, check 99 Alternatives at (http://www.99alternatives.com).

 

Date Published: Oct 11, 2018
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