In the post-covid, low-rate and high-debt landscape of 2021, investors will be hard-pushed to find a stronger candidate than gold, argues Adrian Ash
2021 will mark 50 years since the final end of the gold standard. While no serious economist expects any kind of return to commodity-backed money today, that anniversary will fall just as central banks and government policy work to undermine confidence in official currency like never before, making the case for gold investment all too plain.
First, the anniversary of Richard Nixon ‘closing the gold window’ at the US Treasury in August 1971 will no doubt intensify the debate both around the relentless devaluation of modern currencies and about the Dollar’s dominant role in today’s monetary system. With neither the Euro or the Yuan ready to replace the Dollar, central banks are likely to continue buying gold as a way of reducing their US exposure without having to pick its successor.
Post-covid, investors will face the same high-debt, low-rate landscape which saw gold rise 40% in the 18 months before the pandemic began.”
Private capital is also likely to continue diversifying into gold, driven by negative interest rates, quantitative easing and the growing odds of a ‘melt up’ in asset prices as the dreadful pandemic of 2020 recedes after failing to dent risk-on exuberance even as the global economy suffered its worst crash since the Second World War.
Gold as an asset class has now become an integral part of many private investors’ portfolios, and while this trend began long before covid-19, the pandemic saw allocations from fund and wealth managers jump. Post-covid, investors will face the same high-debt, low-rate landscape which saw gold rise 40% in the 18 months before the pandemic began.
This year’s record investment inflows to gold will be hard to repeat, but absent a new leg higher in the volume of real money inflows, that will still leave a rebound in Asian consumer demand – postponed but not cancelled by this year’s recession and lockdowns – to support prices.
Silver and especially platinum may also find more favour among professional investors as the push for fiscal stimulus, led by 5G infrastructure and green-energy technologies such as solar and hydrogen, accelerates the recovery in industrial already underway for the white precious metals.
Many investors are already well-positioned to benefit, with investment inflows into both silver and platinum setting all-time records in 2020 following their crash to multi-decade discounts when the pandemic first reached Western economies in March.
The fact that global stock markets have surged during the worst economic crash since the Second World War hasn’t diminished the case for gold as a safe haven. On the contrary, the huge taxpayer and monetary stimulus fuelling this exuberance mean that 2021 brings very real risks to long-term savings.
Gold offers a timeless alternative both to financial assets and to cash savings,…