Over the past two months, economic growth has disappointed even as inflation has exceeded expectations. A real risk of stagflation, with rising costs amid lower growth, appears to be on the cards.
This year marks 50 years since the end of gold’s formal link to currency. In the half-century that has passed since this milestone, the world has evolved in ways that were probably unimaginable to the political and economic leaders of that time. As the world has changed, so too has the role of gold. Whereas central banks steadily sold down their gold reserves for several decades after the end of the Bretton Woods system, they have since re-emerged as net buyers of gold for the past eleven years, with emerging market countries leading the way.
Transitory or not, inflation is already impacting consumers
Gold fell slightly during August, down 0.6% in US dollars, on modestly firmer interest rates following strong US jobs data.
Q2 gold demand flat, H1 down 10%
Strong consumer demand recovery and Q2 gold ETF inflows were not enough to offset heavy Q1 outflows.
As the global economy emerges from an unprecedented shutdown, both policymakers and investors are operating in uncharted territory. To better understand investor strategies during this important transitional period, we interviewed approximately 500 institutional investors around the world about their portfolios, allocations and views on markets, gold and other individual asset classes.
Strengthening consumer demand mitigated the impact of ETF outflows as global economies continued to recover
Gold benefits from diverse sources of demand: as an investment, a reserve asset, a luxury good and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.
Weak Q4 set the seal on an 11-year low for annual 2020 gold demand
Strong growth in global investment demand for gold in Q3 partly offset weakness elsewhere as COVID-19 remained in the driving seat.
Our analysis illustrates that adding between 2% and 10% of gold to an average, Singapore-based institutional portfolio since the onset of the financial crisis would have resulted in higher risk-adjusted returns