Gold: The Best Asset To Hedge Against Risks

Updated: June 17, 2021

At all times, gold has always been valued. People have always sought to purchase this precious metal: some to keep their savings, some to resell, others to leave as precept, etc. With the emergence of the financial market, gold immediately took its rightful place there, mainly as a safe-haven asset. It was used for this purpose hundreds of years ago and keeps being used now. During even the slightest global uncertainty, virus outbreak or a global political crisis traders flock to gold.

What are safe-haven assets and why you need them

Safe-haven assets are instruments that are not affected by economic and political risks and times of distress. Even if their value changes, it happens very smoothly, without sharp fluctuations. At the same time, their liquidity preserves – you can always buy or sell safe-haven assets, regardless of market sentiment. Gold and silver are the prime examples of such types of assets.

Safe-haven assets are used as an anti-crisis instrument, a way to hedge against risks. During global turbulence and market downturns, when stocks and indices are plummeting and currencies of many countries are being devalued, it is difficult to predict where certain assets will go. In these uncertain times, you can be sure of gold only.

What drives gold prices

  • If we take a closer look at the factors that affect gold quotes, it may seem that this asset is the most “controversial”. On the one hand, there is consumer and industrial demand, which often directly depends on the state of the global economy: if the economy expands, the welfare of countries or individual regions grows. This in turn leads to higher demand for this metal, so the price rises.
  • On the other hand, there is also a speculative moment: when the economy is shrinking, and a global financial crisis sets in – investors leave risky assets and start buying gold, thus increasing the demand and cost of this precious metal.
  • Today, the COVID-19 pandemic and low commodity prices have triggered a surge in gold prices. According to market experts, this growth in gold value is fully justified. The cost of the precious metal is also influenced by the ultra-soft monetary policy of the Federal Reserve and other central banks. In the near future, the world’s major regulators are expected to keep strengthening their policies and increase stimulus measures to support their economies, struck by the coronavirus pandemic, which, in turn, will contribute to further rise in gold.
  • We should also keep in mind that continuing tensions between the United States and China, which seem to be never-ending, support the gold prices and contribute to its growth. The US presidential elections are scheduled in November. This means increased political uncertainty in the United States and may well become another growth driver.

Should we buy gold now?

Analysts believe that even despite the record growth of this precious metal, it still makes sense to invest some of your capital in it.

At the same time, it’s worth noting that with all the interest among investors, it is difficult to predict where quotations may go. Nevertheless, the largest banks and analytical agencies forecast further growth towards the $ 2500- $ 2700 area in the next 15 months. We recommend waiting for the price to correct downwards first, which is, by the way, happening right now, and then to start buying it.

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