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Gold as a Safe Haven Asset

Angus Claxton, December 12, 2023

Gold is a precious metal that has traditionally been chosen as a medium of exchange for its multiple virtues: store of value, protector against external shocks , protection against inflation gold ira, etc.

Gold also acts as a safe haven asset in times of high uncertainty . That is why we think it is a suitable asset to have in higher risk circumstances.

Behavior of gold in 2021 and forecasts for 2022

Gold performed negatively in 2021, registering a decrease of around 5%. Gold is closely linked to the evolution of bond yields and, since gold has no yield, its interest increases when that of other asset classes decreases. With the presidency of Joe Biden in the United States, there were fears of a budgetary deviation and an increase in the cost of financing its economy with the increase in interest rates, which caused gold to have a negative behavior. Subsequently, the appearance of inflationary pressures allowed the yellow metal to recover by lowering real rates .

To define the possible evolution of gold during 2022 , it is necessary to determine the possible evolution of US real interest rates . With debt of almost 130% of GDP in the United States, a high rise in real interest rates would be very difficult to manage. The same goes for other large economies.

In the current situation, the observed inflation is linked to the lack of supply . This is not only due to supply chain problems , but also to decreased investments in production (energy and metals) and changes in demand (e.g. metals for the energy transition ), which will inevitably be inflationary. All of this, now aggravated by the conflict between Russia and Ukraine , means that the behavior of gold continues to have attractive potential ( +9.2% in dollars this year, as of March 10).

Gold as a safe haven asset

Gold is an asset that diversifies investment portfolios . It does not have a direct relationship with traditional variable income, but with other types of variables, such as real interests . In the current environment of low interest rates and moderate growth , gold will perform relatively better compared to other assets, as we are seeing.

In addition, gold continues to have numerous industrial and electronic applications , such as in mobile phone components, and in other areas, such as jewelry .

With gold extraction growing by just over 1% annually and demand increasing at much higher rates (due to its aforementioned peculiarities, such as its safe haven value), this asset continues to maintain undoubted interest. Not because of its convertibility with paper money, but because of so many other characteristics that continue to make it highly attractive.

Featured Fund: Ofi Precious Metals. FR0011170182

Invest in the four precious metals, Gold (35%), Silver (20%), Platinum (20%) and Palladium (20%) and not in mining companies or companies related to these raw materials or in the physical metal. The remaining 5% is invested in US Short rates (3 months Libor). These percentages are rebalanced daily to maintain the same weight.

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