Gold: A safe haven during accelerated inflation?

We’re only half way through 2022 yet, already a record amount of physical gold, gold exchange-traded funds and other exchange-traded products have been purchased by investors this year. This caused the gold price to rise to near all-time highs of over £1500 an ounce this March, a level not seen since August 2020, during the height of the COVID-19 pandemic. There is no doubt why. Looking back to the start of the pandemic, gold was a strong performer throughout 2020 and it had the highest return of any major asset class, returning close to a 25% yield.

However, 2022 will be a different year. Despite gold’s strong recovery from its 13% dip in 2021, unprecedented global factors still pose significant risks to the economy. The sluggish recovery from COVID-19, Brexit ramifications and now the European energy crisis from the conflict in Ukraine mean that uncertainty is rife. Now, mid 2022 as the UK government collapses, investors are still facing down inflation as one of the biggest risks to their savings. Is gold once again the safe harbour to ride out the financial storm?

How has gold performed historically during times of high inflation?

Gold’s performance over the past 50 years tends to support the theory that gold is a hedge when inflation is significantly higher than any target set by Westminster.

According to a study by the World Gold Council, over the last half a century, gold has returned 15% per annum on average when inflation is higher than 3%, compared to just over 6% per annum when inflation is lower than 3%.

How does inflation impact the economy?

Enter May 2022. Consumer inflation reached its highest level in more than four decades due to rising fuel prices and food costs. Pressures resulting from inflation have a wide range of economic ramifications. Increasing the cost of retail goods and services, inflation first reduces purchasing power.

Due to increased risk, borrowing costs may also increase as interest rates rise. Furthermore, inflationary pressures can fuel further inflation, resulting in a feedback loop.

As people spend faster in order to reduce the amount of time they spend holding depreciating currency, the supply of money exceeds the demand, causing the currency’s purchasing power to fall even further.

In a nutshell, money buys fewer goods and services, decreasing the incentives to save cash and encouraging diversification into other assets or instant spending.

Assets, however, can retain their value more easily. Cars (which have seen 28% increase in prices this year according to Autotrader), houses at 12%, and gold with 20% increases from June 2021 to 2022. In the chart below the last few crises are apparent, 2008 subprime mortgage disaster and more recently 2019-2022 with the triple whammy of Brexit, Covid and Ukraine.

Gold Price per Oz (£) vs UK Inflation (%) 2002-2022

Why does inflation increase gold prices?

Inflation increases the price of consumer goods, resulting in the pound losing value. As inflation rises, the price of gold denominated in pounds increases.

Because investors convert their cash holdings into gold to protect their assets against inflation, gold is a good hedge against inflation. It is possible that an increase in investor interest will lead to a bull market in gold until the inflation effect subsides.

Our previous articles have discussed the advantages of gold as an investment and its importance as a means of protection from inflation. Creating more fiat currency lowers the value of each pound in circulation when inflation occurs.

Gold prices during the 2007 financial crisis

Taking a step back just a few years more, we can see how gold reacts to another financial crisis. In our chart we see a steep increase in the price of gold during the financial crisis that was arguably started with the failure of a variety of investment banking firms from March 2008. Over the course of this period, gold prices first rose, then fell by about 25% during the first few months. Prices then went on to regain all losses within a short period of time and rally to historic highs. Short term the market was very volatile, longer term for anyone holding gold from that time it was a great investment that outperformed other assets.

What makes gold a safe hedge vs inflation?

There is a good reason for the reputation of gold as a hedge against inflation. Since fiat money (paper money) decreases in value during times of inflation, people turn to the assets that have been used as money throughout history – gold and silver. Among the former metals, gold has the reputation of being the ultimate inflation-hedge (silver is regarded as a primarily industrial metal today).

Therefore, inflation and the gold price exhibit a strong positive relationship. As seen throughout the last 25 years in the gold and inflation chart above, gold rallies when inflation rises. An increase in the money supply leads to an increase in the price of goods and gold is a liquid asset.

It has long been a widespread belief that interest rates have a significant impact on the prices of gold and silver.  On the face of it, this would appear to be true. If interest rates were to rise, then it would make sense that the appeal of bonds and savings accounts should go up and demand for physical assets go down. In reality, however, there is no real statistical evidence to support this. This is because there are many other factors that drive the prices of gold and silver.

Correlation between interest rates and prices of gold/silver

Whilst there is some level of correlation between interest rates and the prices of gold and silver, it is not enough to say for definite whether rising interest rates have a positive or negative effect. Over the last 50 years, the correlation between interest rates and the price of gold has only been at around 28%.

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Rising interest rates have also been shown to have a bullish effect on precious metals in recent times, a complete contradiction to what precious metals experts have been telling us for years. Last year, for example, the prices of gold and silver rallied significantly after the federal reserve announced an increase in interest rates. One of the reasons for this is that gold and silver markets predominantly operate on investors’ expectations for the future.

If investors foresee that interest rates might rise, then the prices of gold and silver may drop a long time before the changes in interest rates are actually introduced. After interest rates have risen there may actually be a bounce in gold and silver prices as investors look to hedge their bets for the future. According to recent statistics, the chance of gold prices being higher 12 months after a Fed hike is 61%.

That’s not all

Precious metals are also purchased by many investors as a hedge against inflation. They, therefore, make quite timely investments when purchased during the course of a rate-hike cycle. Hyper-inflation in countries like Venezuela is likely to drive citizens of the country to invest their cash savings in commodities that will hold their value like gold and silver. This serves as a warning to everyone to keep an eye on the direction of inflation in their own countries as what appears to be relatively stable conditions can change quickly if confidence turns.

Other factors influencing gold and silver prices

The main reason that interest rates do not tend to have a significant impact on the price of precious metals, is that there are many other factors normally involved. Investors buy gold and silver for all sorts of different reasons. They may invest in precious metals as a response to potential economic and geopolitical risks for example. After Brexit demand for gold and silver went through the roof as people were worried about the country’s economic future and how potential trade links with the rest of Europe would be affected. This uncertainty meant that people didn’t trust the markets as much as they would have normally and so investing in physical assets represented a viable alternative as well as a way to protect their wealth in the event of a market crash. Other geopolitical factors such as Trump’s administration in the US have also had an effect on gold and silver prices.

Learn more in our YouTube video – “The Gold price today & investing in gold medium to long term”

Another factor that has a big influence on gold and silver prices is the performance of the stock market. If the stock market is underperforming or has declined significantly then one of the first investments people tend to turn to is silver or gold.

 

Silver prices

Silver has a wide variety of industrial uses which means its price isn’t always affected by the same factors that influence gold.  Due to its heavy industrial use, silver prices can also be influenced by a wide range of other economic forces, depending on how other markets are performing.

Purchase gold or silver through Physical Gold

Physical Gold are specialist dealers in gold and silver. We offer a wide range of investments suitable for all investors including silver bars and gold bars and CGT tax-exempt bullion coins (silver and gold). For more information on our services and how we can help you, please give us a call on 020 7060 9992.

Image Sources: Digital Money World

Is it a good time to buy gold as an investment?

The phrase we hear more often than any is; “Is now a good time to buy gold?”. I’ll address that in this update.

One good phrase for timing the gold market is; “Its not the timing of the market, but time in the market”. Trying to buy at the bottom and sell at the top may sound like a wise strategy, but in reality it’s impossible and can lead to reducing your returns and security. The fact is that holding gold over the long term has proven over the years to provide a secure storage of wealth and outperform inflation.

But I don’t want to just beat inflation, I want big returns…..

It’s human nature to want to beat inflation by a large margin and gain more substantial returns. So timing in and out of the market plays a role in achieving this.

While it’s impossible to predict the future, despite many so-called market experts making gold price predictions, timing is about stacking the odds in your favour. This means you look at market fundamentals and choose to invest in assets which look most likely to perform well.

While allocating your money into different asset classes is always recommended, it’s fair to say that now seems like a good time to buy gold.

Because gold has such a long history, we’re able to see how gold has performed before to help predict how it might perform over the next few years.

The gold price has almost always risen in times of severe economic downturns.

Are we heading into an economic downturn?

Even before the pandemic, markets were overheated and global debt at record highs. Since Covid took hold, Governments around the world have opted to print more fiat money to support their suffering communities in the form of furlough support. Now, nearly 2 years on from the start, there seems to be a lethal cocktail mixing which could lead to the mother of all recessions.

The following ingredients are now in play;

• Inflation is rising quickly around the world. This is expected when Quantitative Easing programs around the world have been operating at full tilt. Increase the supply of a currency, and it’s value will fall. But we’re also witnessing inflation from broken supply chains. Petrol, building materials, electronic components for cars, food, carbon dioxide, the list goes on. They are all contributing to prices rising at alarming rates. Consequence; Money in the bank is losing value every day. The cost of living is rising. Interest rates will rise soon, increasing mortgage payments for many.
• Tax hikes are being put in place to try to reduce (or more realistically stem) the spiralling debt. This can be in the form of increasing National Insurance, reduced tax free thresholds for taxes like Capital Gains, and reduced welfare. Consequence: Less disposable income for the average person means economic growth will be strangled
• Continued restrictions are dampening trade. Travel limitations and business restrictions are preventing businesses getting back to anywhere near full capacity. High streets are quiet and shops are closing. Furloughing has ended so the safety net is now gone. Consequences: We’re likely to see a spike in companies going under and individuals losing their jobs
• Equity and property markets will likely fall in response to negative growth, poor company performance and less ability to afford to move home.
• Continued uncertainty will dampen consumer and corporate confidence. With further spikes in Covid cases, potential further lockdowns and possible ‘long-Covid’ consequences, companies will limit investment and consumers spend less.

How is gold supply and demand at the moment?

During the height of the pandemic, we saw enquiries increase around 700% year on year. That initial rush has calmed, but demand from new investors now seeking the security and protection gold offers as a safe haven, continues to grow. Overall demand remains above pre-pandemic levels and we expect this to rise as recession kicks in.

Institutional money will also increase gold holdings as many competing asset classes suffer. They will look to move allocations out of stocks, bonds and cash, and into gold.

And gold supply….?

Supply of new coins and bars is managing to keep pace with demand. However, due to very few gold holders wishing to sell, we still see huge shortages in the secondary market. It has now been 2 years since we saw decent amounts of sellers in the markets. With the looming economic difficulties ahead, I can’t envisage this changing anytime soon. Premiums on many gold coins are increasing.

Where is the gold price?

As of the time of writing (November 2021), the gold price is moving upwards. It remains more than 10% below it’s all time high in 2020, but has gained around 8% in the past month, as momentum builds.

This was expected as we moved out of the furlough support and inflation began to take hold. While we can’t predict with certainty where the gold price will move in the short term, it seems that now represents good value.

With all these elements working together and interest rates likely to rise for the first time in a decade, it seems like now is a good time to be buying gold.

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Research by Digital Ethos and Physical Gold – the UK’s leading provider of gold and silver coins and bars – has found that online searches for the investment in gold have surged since 24th February 2022, the day Russia launched a large-scale invasion on Ukraine.

We have witnessed a 400% increase in search interest compared to the last three months – with peak interest on the day of invasion. Search interest peaked at 100 on the day of the invasion, a huge increase on the 20-25 average of the past three months.

There has also been an 80% increase in gold price searches in the UK and across Europe over the past week. 

Here, we have analysed how gold searches increased throughout Europe in the days leading up to the invasion and shortly after. 

Daily search demand for gold over the last three months

The UK saw a 40% increase in search interest around investing in gold and where to buy gold over the last five days, as well as a huge increase in searches for mining company shares.

Daily search demand vs gold price

Last week, Daniel Fisher, CEO, Physical Gold said that demand had “gone crazy” since the Ukraine crisis escalated. As more investors pile into gold investing, the market broke past £1,404 an ounce last week and has now surged to around £1,450/oz, with Mr Fisher explaining people didn’t want to be left out now the price was moving quickly.

With the invasion of Ukraine, the biggest assault on a European state since World War Two, spot gold prices jumped around 2% to $1928 at Monday’s opening in Asian trade.

The UK is Europe’s fifth most gold-hungry nation

During the last week leading up to the invasion the UK had the fifth highest search interest in “buy gold” phrases. Italy led the way with the most interest, followed by Austria, Germany and France.

Portugal, Finland and Norway were the least concerned with “buy gold” phrases in the lead up to the invasion of Ukraine.

Physical Gold has seen a particular rise in investors new to gold looking for a safe investment option. Markets are facing a turbulent time from the economic fallout with investors scrambling for safe havens such as gold and this can be reflected in the huge increase in search volume.

The Gold Price Today

In this video, I’ll show you how to find the gold price today, track and analyse its performance and then exploit any themes and strategies to invest over the medium to long term.

The simplest and quickest way to track the gold price right now is to look at the top of our website. The price is updated every 60 seconds and displayed in both ounces and grams. An alternative would be to download a gold app like Kitco to your phone so you can track prices on the move.

It’s important to understand that this is the benchmark price, not necessarily the exact price at which you can buy and sell gold. If you want to learn more about how the gold price works, be sure to checkout out our other video ‘Understanding the gold price’.

If you want to dive a bit deeper, then our Gold Price Chart page features an interactive historical price graph and explains the gold price in detail, including;

• Factors influencing the gold price
• The LBMA’s role
• Currency influence on prices
• A market history
• And, Pricing gold coins and bars

If you want to invest in gold, be sure to study this page first.

So now we know the gold price, how can we profit over the medium to long term?

1. Buy in dips

Over the short term, the gold price can be volatile. Try to buy your gold on a dip day, when the price is lower, rather than when the price has moved higher. This may only be a slight difference, but every little bit helps improve profits.

Looking at historical price charts will help you understand where the current gold price is in a historical context. Right now, we can see the price is still below its all-time high of 2020. Buying during the quieter times when the price is relatively low has proven to produce the best long term profits time and again.

 

2. Long term portfolio insurance and wealth preservation

Rather than trying to trade the gold market, or predicting price movements, a good strategy is to see gold as a long term protection. Its safe haven status means that regardless of the current gold price if stock markets and paper currency devalue, gold tends to rise in worth. This means, your overall wealth is protected from nasty market downturns.

With low interest rates, bank savings rates are also low, usually lower than inflation itself. This can mean that leaving money in the bank actually devalues every day it’s sat there. Gold has shown to outperform inflation over the long term, appealing to those seeking a store of wealth.

3. Buy gold regularly

An alternative strategy overcomes the need to really look at the gold price at all. Buying gold on a regular basis can average out the cost of gold so that when the price falls, you buy at the lower level. This approach appeals to those with limited capital to invest, but like the idea of gradually building up a gold holding, perhaps on a monthly basis. We offer a simple solution to achieve this with our Gold Monthly Saver, which starts from only £350/month.

So there you go. Start by doing some research on the gold price, understand how it works, and take a look at historical performance. Then grab one of our 3 strategies and invest away!

I hope you’ve found today’s video helpful. If so, please make sure you also check out our full catalogue of video guides covering everything you need to know about gold and silver.

Buy gold at the best prices from Physical Gold

If you’re looking to buy gold coins and bars at competitive prices, then take a look at Physical Gold’s online store. We’re able to offer gold at rock bottom prices, updated every 60 seconds with the live gold price. Quantity discounts are displayed online so you can decide the most economical way of buying.

If you need guidance on the buying process, or simply need help on which gold coins or bars to buy, then our friendly team are here to help. You can call on 020 7060 9992, engage on live chat from the website or leave us a message here.

Who follows the price of gold the most?

Gold is widely seen as the best investment when it comes to commodity markets as it, more often than not, increases in value over time, so it’s no wonder so many people are interested in investing in solid gold.

Intrigued about who is most interested in gold prices worldwide, we sought to find out which country is tracking the price of gold the most. To do this, we analysed search data to find out how many times the phrases ‘gold price’ and ‘price of gold’ were searched per month in 155 countries before exploring these search results per 1,000 active internet users in each nation*.

To make the data as reliable as possible, we explored each of the phrases related to gold prices both in English and the specific country’s primary language. This created a clear picture of which countries are tracking gold prices the most around the world.

The top 20 countries tracking gold prices

Country most interested in price of gold

Taking the top spot for the country tracking gold prices the most is the United Arab Emirates, with a staggering 521,000 average monthly online searches, or 58.45 online searches a month for gold price per 1,000 active internet users, either looking to invest in solid gold bars or being interested in the current value of the metal.

Singapore, self-titled ‘Garden City’, comes in second place. According to our research, Singaporean’s search for the price of gold 184,500 times a month on average, which equates to 38.27 searches per 1,000 active internet users.

Third places goes to Qatar – one of the world’s richest countries – where residents make 76,800 searches per month on average. Despite having fewer searches than UAE and Singapore, when compared to the number of internet users in the country, this means there are 30.33 searches per 1,000 active internet users.

Even though New Zealanders make just 39,000 searches for ‘gold price’ on average each month, this equates to 9.12 searches a month per 1,000 active internet users in the country, ranking in eighth place.

UK and US in top 10

The United States and the United Kingdom follow closely behind each other in places nine and ten, respectively. The USA makes a total of 2,506,000 searches each month, which is equivalent to 8.02 searches per 1,000 internet users in the country. Comparatively, the UK falls short of this figure with 7.98 searches for ‘gold price’ for every 1,000 active internet users, after making 519,300 searches overall each month on average.

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Download the 7 Crucial Considerations before you buy gold here 

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India’s affinity with gold

Despite having the highest number of searches for ‘gold price’ on average each month (3,720,600), India comes in fifteenth place when compared to searches made by web users in the country. In fact, there are 4.92 average monthly searches per 1,000 internet users in the Asian nation, which is 53.53 fewer searches than the United Arab Emirates in the first place.

This low ranking is a surprise as it’s common knowledge that gold has a central role in the country’s culture. The precious metal is considered a store of value, a symbol of wealth and status, and a fundamental part of many rituals, which explains why up to 25,000 tonnes of gold is accumulated in Indian households in jewellery, bars and coins.

Lastly, rounding off the top 20 countries most interested in tracking the price of gold are Austria and Nepal. According to our research, both countries have 2.21 average monthly searches per 1,000 active internet users.

You may also like: Benefits of Gold Investment

Continents most interested in tracking gold prices

To identify which continents are most interested in tracking the price of gold, we calculated which continents each of the top 20 countries originate from.

Our analysis found that Asia is home to the most countries interested in tracking gold prices, as we found 13 Asian countries featured in the top 20. Europe comes next with four entries, including the UK, Ireland, Croatia, and Austria. Trailing behind with just two countries each are the continents of North America and Australia.

The full results

*Methodology:

• For each country in the top 50, Physicalgoldcom gathered data for the number of overall active internet users in each of the respective countries.
• To get the results for online searches for gold price per 1,000 active internet users – www.physicalgold.com divided the overall figure for the number of active internet users in each country by thousand.
• Thereafter, the average monthly online searches for gold price for each country figure was then divided by the answer from the calculation that was made in stage two for each respective country to establish the average monthly online searches for gold price per 1,000 internet users in each of the countries in the top 50.
• There wasn’t enough data to include China in our results.

 

Please note: When analysing the data, the two key search terms/phrases related to gold prices were explored in English as well as each country’s respective primary language (where applicable) to increase the reliability of the results.