Gold during the pandemic, as in any other economic turmoil, was in high demand as a safe-haven asset, and even brought tangible income to investors. However, in the coming post-covid times, it is unlikely that investors will continue to buy gold – they are more likely to return to risky assets for returns, according to analysts surveyed. Herald of the Gold Producer…
In early August 2020, the price of gold reached $ 2,067.15 per ounce, a historic high. The price later consolidated lower but comfortably stayed above $ 1,850 for most of the third and fourth quarters, ending the year at $ 1,887.60.
“Gold rose in price by 25% at the end of 2020, – the pandemic forced to hedge risks in gold, and investors laid a high probability of a deep correction in stock indices,” the analyst said “Freedom Finance” Evgeny Mironyuk.
MOOD IS NOT CHANGED
Without exception, experts and analysts are confident that the pandemic has affected the portfolio of investors, as during the year there were historically high inflows to exchange-traded funds (ETFs), backed by gold. According to the World Gold Council (WGC), the total net inflow to ETFs was 877.1 tonnes at $ 47.9 billion, well above the previous historic 2009 figure of 591 tonnes.
The share of defensive assets has risen sharply and is likely to remain quite high in the future until the situation settles down and the economy reaches robust growth, says a commodity analyst. “Otkrytiya Broker” Oksana Lukicheva.
Head of Precious Metals Operations Department, Ural Bank for Reconstruction and Development (UBRD) Evgeny Afanasiev agrees that the rising risks associated with the spread of the COVID-19 virus, low interest rates in developed countries and a weak dollar have led to an influx of investments in gold. “But this, in my opinion, is not a strategic change in investor behavior,” Afanasyev said.
That is, the coronavirus pandemic, which had a significant impact on the economies of countries, did not become an “X” factor for investors and did not greatly change their attitude towards the portfolio.
“We do not expect a sharp transition to savings,” Lukicheva added, since risky assets show good returns, and the economy is still not quite “on its side”.
Over the course of the year, even in a pandemic, investor behavior often changed depending on the incoming information. Reports of new programs of fiscal and monetary support from governments fueled interest in risky assets, and statistics on the growth of COVID-19 diseases and new lockdowns in many countries, in turn, cooled investor interest in risk and returned to gold. “Thus, a long-term transition to risk-free assets, to a savings strategy is hardly possible,” Afanasyev emphasized.
Gold will not lose its function as one of the safest assets to save in 2021. At the same time, there are other safe-haven assets on the market that are already established and are just emerging.
“Bitcoin is sometimes referred to as an alternative to gold,” says Mironyuk of Freedom Finance. But, in his opinion, this most popular cryptocurrency is rather a leading indicator for the stock market. In general, over the past year, its correlation with stock indices has increased, despite record volatility. “Thus, Bitcoin is unlikely to be able to hedge its risks,” the analyst is sure.
Bitcoin, like gold, due to the current situation last year, received its share of investments, Afanasyev said. Bitcoin and gold have some similar properties, but they are not competitors. The amount of gold mined, like bitcoin, is limited. The amount of gold is limited by the amount of available deposits. The amount of bitcoin is limited by the number of coins that can be “mined” (21 million coins in total). And, unlike fiat currencies, neither gold nor bitcoin can be printed at the behest of the state Central Bank.
“It is likely that if there were no bitcoin, some of the investments would have gone to gold. But in general, these are still very different assets and, in my opinion, they do not compete with each other and do not have a clear direct or inverse correlation,” – says Afanasyev from UBRD.
The rise in the yield of treasury bonds carries especially great risks for the gold market, said Lukicheva from Otkritie-Broker. In her opinion, they are the alternative to gold, not bitcoin. “Bitcoin is still a very risky and even marginal investment,” she added.
Head of the Department of Strategies for the Commodity Market Saxo Bank Ole Hansen says that they do not see Bitcoin as a viable alternative to gold at all, as its dynamics are very volatile. He also noted that risk appetite is currently heightened as investors focus on the stock market.
Senior analyst Alfa-Capital Management Company Maxim Biryukov I agree with Hansen, – now the attention of investors is switching to riskier assets, as the reasons for their growth are added every day, – these are unprecedented incentives of central banks, and a willingness to continue stimulating economies, progress in vaccinations and many others. “We do not expect the continuation of the bullish trend in the value of gold,” he concluded.
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