Publications

- April 1, 2021: Vol. 8, Number 4

Gold, silver, bitcoin: Investors keep an eye on safe havens as governments gorge on debt

by Mike Consol

The economic landscape for gold is becoming more complex, as bitcoin competes with gold for safe-haven status.

As the U.S. Federal Reserve Bank and other central banks pursue monetary policies and growing their balance sheets to record levels, the threat of global currency debasement is real, according to some observers, leading some investors to seek safe havens such as gold and bitcoin. The issue might not be whether gold or bitcoin is a safer haven, because any alternative asset that will protect wealth will become a necessity if purchasing power begins to flag.

Inflation is expected to play a major role in deciding the future of gold. According to the International Monetary Fund, $12 trillion has been pumped into global financial markets as governments and central banks worldwide have tried to stabilize the economy that was devastated by the pandemic. Investors are now speculating that the fallout will be seen in higher inflation, especially when the economic activity picks up in the second half of the year. When prices rise and the value of the dollar falls, gold is often seen as a hedge against inflation.

Meanwhile, a survey of institutional investors and wealth managers determined the vast majority are optimistic about the price of gold and silver rising in 2021. The study, from Global Palladium Fund, reveals that one in three (32 percent) professional investors expect the price of gold to rise by between 3 percent and 5 percent this year, and the same number expect it to increase by between 5 percent and 10 percent. Some 17 percent anticipate a rise of more than 10 percent, and just 5 percent think the price of gold will fall.

The corresponding figures for the anticipated change in the price of silver this year are 25 percent, 25 percent and 8 percent, respectively, but 16 percent of professional investors believe the precious metal’s value will fall. Much of this could be off the back of a gold rally, but also from rising industrial demand for the metal.

The survey reveals that one of the main reasons why the price of gold is set to rise is that the U.S.-China relationship is expected to remain challenging under the Biden administration, and this, along with several geopolitical risks and a growing threat of inflation, means 85 percent of institutional investors believe this will put upward pressure on the price of gold.

In addition to this, 40 percent of institutional investors strongly agree, and 57 percent agree with the view that the importance of gold could increase as some countries look for alternative ways to the U.S. dollar to settle international trade. Gold could increasingly fulfill this role as it is seen by many as “apolitical” money as it is not issued by any central bank. This too could have a positive impact on the price of gold.

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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