The popularity of gold is on the rise. Traditionally used as a means of portfolio diversification for equity investors, this precious metal is currently benefiting from the turbulence of American and European banks, following the fall of three American banks and the stock market collapse of Credit Suisse, which is weakened and could lose its independence. As a safe haven, gold is benefiting from current concerns about the stability of the financial system.
Gold: a safe haven that remains relevant.
When the economy is uncertain, many investors look for ways to protect their money. Gold is one of the most sought-after assets in such times. Considered a safe haven for centuries, gold offers a stable investment that allows investors to protect their money. Despite the popularity of gold in times of crisis, some investors prefer to turn to other more profitable options in normal times, such as real estate or life insurance.
However, history shows that gold has always been a popular safe haven in times of crisis. In France, for example, during the two oil shocks of the 1970s and 1980s, investors rushed to gold, owning up to 4,600 tons in total. Similarly, during the last major global financial crisis in 2008, many French people sought to protect their money by buying gold.
But gold is not only used to protect money in times of crisis. It can also be used as a long-term investment. In 2011, gold reached a historic value of $1,900 an ounce, but the price of gold fell after the crisis before rising again since early 2016. Today, 73% of French people still consider gold a safe haven.
However, investing in gold is not without risks. Market fluctuations can make gold investments very volatile, and investors must be aware of the risks associated with buying and selling this precious metal. Therefore, it is important to do thorough research and diversify one’s portfolio to minimize risks.
From a fundamental perspective, gold is currently benefiting from the sharp drop in long-term interest rates, amplified by increasing stress in financial markets. This wave of fear favors investments in government bonds at the expense of stocks, which leads to a mechanical increase in government bond prices and thus a decrease in their yield (interest rate). The 10-year US rates have fallen sharply since the beginning of March, dropping from over 4% to 3.4% in just two weeks.
Is gold still a safe-haven asset? The price of one fine ounce of gold (31 grams) saw an increase of nearly 10% during the month of February 2022, marked by Russia’s invasion of Ukraine. Between January and August 2020, during the global recession caused by the Covid-19 pandemic, gold saw its price soar by over 20%. Gold prices also skyrocketed following the so-called subprime crisis in 2008 and public debts within the eurozone: between January 2008 and August 2012, the value of gold thus increased by nearly 100%.
However, gold is not an optimal safe-haven asset. It should be noted that the gold market is volatile and carries a liquidity risk. In addition, it is particularly difficult to predict the future evolution of the value of gold, as price declines can be rapid and unforeseen. Despite these risks, during times of crisis, investors and individuals seek stable and reassuring assets. Among the available options, gold is considered a unique and precious commodity. Indeed, gold is a limited and stable resource that cannot be created or destroyed like paper money. Therefore, gold maintains its intrinsic value even in times of crisis, making it a sought-after financial refuge during times of economic, political, or geopolitical uncertainty.
Adding gold to a stock portfolio can reduce fund volatility, thereby reducing overall risk. Individuals seem to be increasingly attracted to gold, as noted by Cédric Koczor, director of the company Loomis FCGS, which sells and stores gold for banks and savers: “We doubled our sales between February 24 and March 24.” The increase mainly focuses on coins and small bars, while large products like bars remain fairly calm in terms of sales. Indeed, the high cost of gold bars can deter investors.
Is Gold Still A Good Safe Haven Investment In 2023? Gold has been a sought-after precious metal throughout history. From ancient civilizations to modern times, gold has played a crucial role in human society, serving as a store of value, a currency, and a symbol of wealth and power. Today, gold remains a popular investment, a liquid asset that is actively traded around the world. In 2022, the gold price has remained flat, but it has outperformed other asset classes like bonds and stocks. While there is uncertainty surrounding geopolitical crises and macroeconomic situations, investing in gold remains an appealing option for those seeking a liquid and unique asset.
One of the key benefits of investing in gold is that it is a proven diversifier. Over the past 50 years, gold has had very low correlations to stocks and bonds, making it an appealing safe-haven asset. In times of market volatility, gold can provide stability to an investment portfolio, helping to mitigate risk and protect against losses.
Another benefit of investing in gold is that it is a good hedge against rising inflation. Gold has a long history of maintaining its value during periods of high inflation, making it a reliable store of value in times of economic uncertainty.
Despite these benefits, there is no guarantee that the price of gold will rise, and as with all investments, there are risks involved. However, volatile economic and political conditions tend to support the prices of gold, and gains have been checked due to a combination of factors such as interest rate hikes and the strengthening of the US dollar.
In 2023, gold has once again become a geopolitical issue for central banks, which are displaying an unprecedented demand for the yellow metal, according to France Info. This demand is particularly strong in emerging countries, such as Turkey, Egypt, and Qatar, as reported by Challenges. The combined demand of central banks and investors is causing an increase in the price of gold, which is currently at a peak, although its historical record remains that of August 2020, when the ounce had reached nearly 1,890 euros. At that time, the Covid-19 pandemic had contributed to the rise in the price of the precious metal, as analyzed by Les Echos.