In times of economic turmoil, the Stock market is a safe-haven investment. In such times, gold tends to rise. Stocks are driven by economic growth and stability, while gold is driven by economic distress. When stocks are doing well, mainstream investors feel little need for gold. But, when the stock market is undergoing a downturn, investors are looking for a safe-haven in gold.
Stock market is a safe-haven investment during downturns
Stock market is known as a safe-haven investment for investors in economic downturns. Though cyclical investments typically take a dip during recessions, investors can invest in safe-haven assets and earn modest returns even in such times. In addition, safe-haven investments offer potential growth during bear markets. Therefore, safe-haven investments hold a special place in portfolios of successful investors. They may hold small or large positions in safe-havens depending on their risk profile. Before investing in any particular safe-haven stock, make sure to do your research and read up on current economic conditions.
Fed’s plans to raise interest rates
As we head into the fourth quarter, the gold price looks vulnerable to fluctuations in the stock market. However, this doesn’t mean that the price of gold is in danger of falling too far. A break of $1,700 per ounce may be the trigger needed to push the price of gold back up.
China’s zero-COVID policy
China’s zero-COVID policy reflects the country’s social and political system. China’s authoritarian government cannot tolerate accountability for its actions. This policy makes the government fearful of making a mistake before party congresses. Therefore, the government is driven to be as rigid as possible. However, it is not immune from pressure from the public.
Inflation
Despite recent gains in gold prices, there’s still a lot of uncertainty surrounding the future of the precious metal. The World Bank recently predicted that the price of gold will continue to decline through the rest of 2015, and that institutional investors will view gold as a riskier investment. A recent study by Goldman Sachs has increased the long-term price forecast for gold to US$ 1,200 an ounce in the next year. That’s up significantly from the previous forecast of USD 1,050 an ounce, but still below the current price of around US$ 1,300.
Central banks
The gold price is directly impacted by the actions of central banks around the world. Those policies can either drive up or drive down the price of the yellow metal. While the price of gold has fallen for the last 10 years, it has recently rebounded. It is expected to continue to play a significant role in the future. Moreover, central banks are already among the largest holders of gold, so their decisions will help shape future gold demand.
Russian war
Gold price analysts say that the Russian war could deter central banks from raising interest rates in the world. This is because higher interest rates are bad for gold and often help to quell inflation. In addition, a war puts economies around the world in jeopardy, which would dampen the appetite for gold. Recently, the Russian central bank resumed purchases of gold, but the sanctions against Russia have led to the ruble’s depreciation. This may cause the Bank of Russia to sell off some of its gold reserves.
Precious metals complex
It is possible that the gold price will rise briefly in 2013. Most likely, this will happen in the first quarter of 2013, which is when the Fed has raised rates. However, the metal is more likely to fall until at least 2022, when it will likely rebound.
Mining equities
Investing in gold-mining equities is a great way to get exposure to three key activities in the gold industry: successful mine development, a strong operating base for mining assets, and positive free cash flow. As the gold price continues to climb, these stocks are attractive investments.