A recent FT article highlighted research from Moody’s which has estimated that global households have saved an extra US$5.4tn since this start of the COVID pandemic. This, the article goes onto say, could pave the way for a strong rebound in consumer spending, boosting the economic recovery.
Since the start of the year, economic optimism has generally been on the rise. Stock markets have continued to rally, and yields have risen as investors have switched their attention to potential inflationary pressures that come with economic expansion. Much of this is thanks to the unprecedented levels of monetary and fiscal stimulus from governments across the globe. Against this backdrop, gold has struggled. And some might think that a wave of consumer spending, propelling economic growth higher can only be negative for an asset considered a hedge against financial turmoil.
But, while risk and uncertainty may be lower, the potential impact on gold is a little more nuanced than some investors might realise. So, how might this increased stock of savings impact gold then? Well, for this we can look to gold’s dual nature, both as an investment and a consumer good. Gold’s different sources of demand, and how they impact gold’s behaviour, are key to understanding its diversification benefits.