In times of political uncertainty and unsteadiness in the economy, investors try to look for refuge where they may securely park their wealth. Throughout history, gold has been considered a haven in times of turbulence. Turbulent political landscapes and interest rate cuts lately once again have made gold a popularly touted investment avenue. This article explores why gold can be a wise investment choice in the current climate, drawing upon recent insights and market trends.
Political uncertainty and demand for safe-havens
Political uncertainty has accounted for a good trend in gold prices. According to Equiti, the upcoming presidential election in the U.S. would be a major factor affecting the market trend of gold. During previous elections, there was a lot of volatility in the gold prices due to the uncertainties that were associated with future economic and political policies. Currently, Gold prices have reached a new historical high amidst the uncertainty in worldwide politics as reported by ZAWYA. As of November 8, 2024, the price of gold in the US is:
- Per ounce: $2,711.30
- Per gram: $87.17
- Per kilo: $87,170.25
Owing to geopolitical tensions-essentially between the two superpowers of the United States and China, investors became more attracted towards gold. This trend of gold justifies its globally acknowledged position of being a hedge asset. It protects an overall investment portfolio from potential losses during the periods of other investments, particularly all other commodities showing poor performance.
Interest rate cuts and price of gold
Interest rates are a linchpin to the price of gold. When interest rates are high, gold is usually less attractive since it does not pay interest or dividends. Gold comes to be more attractive when there is a cut in interest rates. Following cuts to interest rates by the Federal Reserve, CBS News reports that gold investments have become so fashionable.
The interest rate and gold price relationship is well-documented. Low interest rates diminish the opportunity cost of holding non-yielding assets such as gold. Usually, the low rate also suggests economic uncertainty, which may motivate investors to look for safe havens. As BlackRock commented in their recent commentary, macroeconomic data suggests that the Federal Reserve may not cut rates as much as markets expect, which could sustain or even boost gold prices.
A brief history of gold performance
Gold is one of the oldest stores of value in history. It has been used as a form of currency, a hedge against inflation, and even as a safe haven during economic recessions. As explained by Investopedia, due to its unique properties, it becomes highly demanded not only for investment reasons but also in manufacturing and for making jewelry.
The gold prices, therefore, have been on an upward trajectory due to the economic uncertainty and the geopolitical tension. Some recent gains in the price of gold were largely credited to the aforesaid causes coupled with the strong demand from the central banks reported by PBS.
Various investment avenues
Investors may approach gold investment in a number of ways. For example, physical gold refers to gold coins and bars. Other forms include gold ETFs, gold mining stocks, and gold futures. All alternatives have their set of advantages and disadvantages, depending on the investor’s goals and risk tolerance. According to CBS News, investors must choose the right type of investment in gold to maximize returns and reduce risks.
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