The Gold market has been dominated these last months by the economic performance of the US economy. Week after week, the combination of new data and the words of US Fed Chair Jerome Powell are dissected for signs of where US interest rates might be going and whether there will be a definitive start to decreasing in the amount of bonds the Fed buys each month (tapering).
Both inflation and tapering are critical to the movement of Gold. Higher prices mean the potential for higher interest rates while the end to tapering could signal a stronger USD$. These trends would point to a softer Gold price in the near future.
But, don’t let these macro-factors distract you from accumulating precious metals and diversifying your portfolio.
Gold (and Silver) are less speculative investments. In other words, they should be regarded as a medium-to-longer term hedge against currency weakness (in our case the ZAR) and also as a store of value in times of crisis.
Notwithstanding the uncertainties of the Covid-era, there remains key questions that can ignite macro-economic concerns. The issue of keeping inflation in check is perhaps one of the toughest economic questions of this era. Is it only transitory or does inflation threaten to devalue currency over an extended period?
For the US, interest rates can offset inflation but with high levels of global debt, higher rates can negatively affect both developed and emerging economies and precipitate global financial strain. These factors may subdue the Gold price in the short-term but can equally lead to higher prices if volatility returns to the global economy.
Add to these uncertainties the broader geo-political concerns around US-China-Russia relations, terrorism and regional conflicts and you continue to witness a global economic and political order that retains a host of unknowns.
It is for this reason that a Gold holding is a really important part of a balanced approach to financial planning. While there can be some sideways movements in the shorter-term, longer-term trends largely point to Gold being a reliable anchor of any portfolio. Still, South African investors have the chance to invest now while the ZAR is still relatively strong.
Short-term data certainly can affect the price. Yet one should always look at the bigger picture. Those who have successful investment portfolios will likely have a proportion of their funds in precious metals. Call it an insurance policy, and don’t be too influenced by the daily news cycle. Instead, take a longer view as the world moves through the Covid pandemic and adjusts policy to forge a new road ahead.
