Many were frightened by the strong fall in gold on Monday and, for sure, someone began to doubt the future of this trading instrument. Why did this happen and what awaits us next?
Amidst the euphoria of Pfizer news, investors rushed into risky assets and gold was being sold in large volumes. Even though the price per ounce fell by $100, the level of $1860 survived.
Everyone knows that US government bonds are the safest asset for investment, but how profitable is it to invest in them?
– Ten-year bonds have a yield of around 0.9% and the projected average US dollar inflation is 2.5%.
– yields on annual bonds are around 0.2% and annual inflation in the USA is 1.4%
Looking at these figures, it can be estimated that a government bond investor loses around 1.5% of the real value of assets per year, taking into account the difference between yield and inflation. Considering that interest rates are nowhere to be lowered, bonds cannot grow and the yield cannot be higher than inflation. Investors are therefore increasingly starting to adjust their investment portfolio towards gold and stocks.
Experts estimate that all gold in the world is worth around USD 12 trillion, shares worth USD 90 trillion and bonds worth USD 250 trillion. This means that gold takes up around 3.5% of the value of all investment assets.
The amount of gold in the world cannot grow rapidly as production depends on the capacity of the mining companies. Therefore, in order for gold to take up not 3 but 5 per cent of the investment portfolio, its value must increase from $2,000 to $3,000.
If there are no force majeure events in the world, gold must continue the upward trend over the next few years. All major central banks continue to print money to keep interest rates low and drive inflation up. Of course, this movement will be accompanied by some kickbacks, given skyrocketing inflationary expectations and possible adjustments to central banks’ monetary policy.
What awaits us today?
08.00 UK GDP for 3rd quarter and since the beginning of the year
14.30 Number of initial applications for unemployment benefit in the USA
17.00 US crude oil reserves
Important Notes on This Publication:
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.