The global stock indices have been able to recover significantly since the ‘Corona-Crash’, although they have recently become more volatile and a renewed slump cannot be ruled out. But what do investors celebrate on the stock exchanges?
Sure, you can argue that the stock market reflects the future. But record prices right after the economy has been and still is down in many parts – is that really a good enough reason to celebrate on the stock exchanges?
The global stock indices have been able to recover significantly since the ‘Corona-Crash’, although they have recently become more volatile.
No, it is not a rise in the market driven by real economic growth, but a rally driven by liquidity. And that will be the new reality. The amount of money that the stock exchanges are currently celebrating will boomerang right back, probably in the form of inflation.
Thus, it comes as no surprise that investors are increasingly investing in precious metals and gold ETF’s are recording record inflows. (A gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price.)
While it is still uncertain whether inflation will actually reflect in consumer prices in the near future, we can already observe the flood of liquidity
While it is still uncertain whether inflation will actually reflect in consumer prices in the near future, we can already observe the flood of liquidity that is making its way to the financial markets and will lead, for example, to an inflation in stock prices.
(When inflation rises, the value of currency goes down and therefore people tend to hold money in the form of gold. Therefore, in times when inflation remains high over a longer period, gold becomes a tool to hedge against inflationary conditions. This pushes gold prices higher in the inflationary period.)
In our view, this liquidity will roll across almost all asset classes and cause prices to rise.
At the end of this cycle, inflation should be a realistic outcome. By then, the gold price is likely to have risen significantly.
Gold is most likely to continue heading towards a new all-time high this year, we will experience a gold price of well over $2000.
Gold is most likely to continue heading towards a new all-time high this year, we will experience a gold price of well over $2000. The massive programs of central banks in Europe and the United States, the quantitative easing and buy-out programs will lead to new, unprecedented gold levels.
Gold is not just an investment; it is a guarantee of personal prosperity for years to come and future generations.
The investment in precious metals, which rightly holds deep roots in culture, is an insurance against inflation. In the past 12 months, the gold price (in US$) has increased by around 30 per cent, and since the year 2000 by more than 500 per cent - a five-fold increase of the invested capital.
Whereas gold is not risk free and the price of gold has not always risen linearly and is also subject to certain fluctuations, the upward trend still appears intact, and experts expect a new all-time high for the precious yellow metal.
Experts expect a new all-time high for the precious yellow metal
While the liquidity through central banks continues to increase, so does the national debt of the US and European countries. Gold is not subject to liquidity risk and is exposed to a lower market risk without a counterparty-risk like other investments.
Also, unlike stocks or bonds, the precious metal is not subject to any liabilities and can thus only fall back on its intrinsic value – which is at the level of the total production costs. Through the long-term conservation of value and purchasing power, gold compensates for the steady price increases so that no interest accrues for gold depots.
For thousands of years, gold has been used as a means of payment and an instrument of choice for asset protection. No state or currency was able to maintain its value over such an extensive period of time. Gold was used as a means of payment in ancient Egypt or ancient Rome and has maintained its purchasing power ever since.
If you wanted a tunic made-to-measure in ancient Rome, you had to pay for it with a gold coin. Today you still get a bespoke suit for the same gold coin. Gold has retained its purchasing power for more than 2000 years.
The current market environment, the uncertainties in the global economy and the risk of rising prices make gold an attractive investment.
For many years, gold has been more than just fine jewelry and a safe haven.
Gold is considered a stable investment in uncertain times. The precious metal can shine bright especially in asset protection, which should therefore be a staple of any long-term investment strategy.
- Count Oliver of Wurmbrand-Stuppach is the founder of GWS Group, which is an international tax advisory, corporate service provider and leading trust company with offices in the UAE & Europe.