The gold market remains on track to end the year above $2,000 per ounce and rise to nearly $5,000 per ounce by the end of the decade, according to the latest “In Gold We Trust Report” from the European investment firm Incrementum AG.
Per the report, Incrementum’s analysts are bullish on gold as rising inflation threatens to edge the global economy into a recession. The company warned that normalizing global monetary policies has revealed serious problems in the global economy that were papered over by loose monetary policies and huge amounts of liquidity.
“Just as in 2018, when we warned of the inevitable consequences of the attempted turning of the monetary tides, we are now issuing another explicit warning,” the report stated. “In addition to wolfish inflation, a bearish recession now looms.”
The report also points out that the price of gold has also been affected by the Federal Reserve’s tightening policy. Although gold has performed well relative to all other asset classes this year, further headwinds are to be expected for gold in the short term. If the Fed signals a pause in tightening in 2022, new all-time highs are possible.
“The Federal Reserve runs the risk of overestimating the impact of rate hikes and balance sheet reductions on containing inflation, just as it has underestimated the impact of rate cuts on boosting inflation,” the report added.
With inflation expected to hold above 5% through 2022, Incrementum said that equity markets could see further losses this year, adding that holding precious metals has proven to provide a cushion for those losses.
The S&P 500 has declined 18% so far this year, approaching bear territory. Meanwhile, gold prices are up 1% on the year as prices push back above critical resistance at $1,850 an ounce.
“The historical performance of gold, silver, and commodities in past periods of stagflation argue for a correspondingly higher weighting of these assets than under normal circumstances,” said analysts. “But also, the relative valuation of technology companies to commodity producers is an argument for a countercyclical investment in the latter.”
The abrdn Physical Gold Shares ETF (SGOL) is designed to track the spot price of gold bullion by holding gold bars in a secure vault in Switzerland that is audited twice a year. The company also posts the serial numbers of the bars, giving investors further security over the status of their investment.
While SGOL isn’t the most liquid way to gain exposure to gold, it could be a good fit for investors seeking greater peace of mind regarding their precious metals investment.
It should be noted, however, that while serving as a good diversifier, commodities are more volatile than stocks. Macroeconomic factors such as supply chain disruptions, economic slowdown, or a recession could significantly — and abruptly — impact prices.
SGOL has an expense ratio of 0.17%.
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