The Russo-Ukrainian war has reminded investors of one of the virtues of buying gold: that it is a useful portfolio diversifier and a timeless store of value. The current price of gold is set at $1,900 per ounce; a sharp rise for the first time in the last eighteen months. From the perspective of the usual, this has come up as a strange development, since it has featured at the same time as a bond selloff – a very unusual phenomenon indeed. From the historical perspective, the US treasury yields and gold have never had any correlation. A case in point was between 2007 and 2012 when the increase in yields caused the price of gold to dramatically fall. Otherwise, 2018 to 2020 saw the falling yields instead of rallying the price of gold.
If we are to consider the above, then gold ought to have suffered in terms of value
By considering the above past history, the price of buying gold would have suffered because bond yields grew dramatically in the third quarter of the year 2021. However, this has not happened – making it the opposite of what investors buying gold had thought about. Well, it will be prudent to say that this historical phenomenon explains this unusual link between gold and bond yields and it is the fact that gold doesn’t earn interest. When explained clearly, we can say that when the bond yields are high, buying gold will require hefty investments from investors, if they want to hold the metal, and that is why many don’t want to hold it. Consequently, we expect the price of gold to fall when bond yields rise. Until a short while ago, that is what most investors buying gold was experiencing.
Question: what is the cause of this unusual behavior?
Why does gold take a reverse course, as well as a rising one, when the US treasury bonds yield much? Well, the most probable explanation for this is that it could have increased as a result of a sharp rise in the price of oil. There exists a very weak correlation between the two commodities and it has been snug at 0.14 since 2006. We can also competently say that what is happening has not been masterminded by the rising inflation expectations. There also exists a weak correlation here: between break-even inflation every five years, the correlation between the two commodities has been 0.06, since 2006. Experts of buying gold often say that the dollar price of gold tends to rise when there is a recession in the dollar. However, the explanation for this could be that a weaker dollar lowers the dollar price of gold. This allows investors buying gold in Yen or Euro to buy more of the metal. However, this does not offer any sufficient explanation for the recent hike in the gold price, because there haven’t been any changes in the US Dollar Exchange rates since the beginning of 2022.
Buying gold as a safe haven
At the moment, investors buying gold do not have any concrete explanation to account for the sharp rise in the price of gold. However, we can attribute this to the tensions between Russia and Ukraine, which recently culminated in an invasion. The propagation of the thought that geopolitical crises often make gold expensive is not folklore. It has an empirical basis. Gold is a true description of a “safe haven”. Many investors start buying gold when they envisage turmoil and crises in the geopolitical setup of the world. It is this characteristic that makes it different from cryptocurrencies. Let us consider the case of Bitcoin which is currently down by 40% in terms of the dollar since November 2021. This reveals that it is a risky asset that doesn’t offer protection against the downward trends in the global stock markets. Therefore, the sharp rise in the price of guld has been embraced by investors that are already diversified.
Is it recommended for one to start buying gold now, or is it too late?
From the dawn of 2022, investors have seen something unusual, at least the by the standards of the past years: losses in both in the bonds and global stocks. One of the most quoted examples is the loss that MSCI World Index has lost: it stands at a whopping ten percent since the beginning of 2022. For that reason, balanced portfolios have lost incomes. Of all the funds in the Trustnet database, there’s just one that has been able to avoid losses since the 2022 year dawned on us. In this perspective, the sharp rise in the price of gold has helped to alleviate these setbacks.
This now drives us to a new direction of research: gold as a good way to diversify risk
Clearly, whatever has happened might have been motivated by sheer luck. Not all investors buying gold had expected a full-scale military campaign conducted by Russia in Ukraine and such, and did not think of an investment strategy based on the occurrence. However, when your objective is to start buying gold, you should never hinge on speculations and predictions of world events. Instead, we should look at buying gold as a way of protecting money from uncertainties. Of course, we all know that the price of gold usually shoots up during the times of war and fall down when there is peace. Buying gold is a form of insurance and as we know, this can be quite costly during the good times. The course of events in Ukraine and Russia are currently unpredictable, but as soon as the bloody onslaught comes to an end, the price of gold will titter towards its downward trends. Resultantly, this is likely to cause equities to rally, making balanced portfolios to enjoy a good performance, despite the fact that they are currently being held back by gold. In such times, the most important thing that an investor who likes buying gold has to do is to remain resilient.
So, how can investors start buying gold right now?
The most practical, convenient, and safest way to invest in gold is to buy physical gold. This, you can do, by investing in high-quality gold bars, gold ingots, gold dust, gold coins, and gold nuggets. Although many gold buyers usually prefer buying gold from the bank, we can competently tell you that the gold in banks is very expensive. Nowadays, investors who want to start buying gold look to cheap sources of gold. As such, Africa has become one of the most favorite locations that attract gold buyers seeking cheap gold sold at below the current gold price on the international gold market. The advantage of buying physical gold is that it offers instant liquidity. When you choose to buy from Africa, you will definitely pay less than you often paid from other markets. With the current trend in gold, and the continued struggles in the economies across the world, you will double or even triple your investment in a decade’s time when you start buying gold today.
Contact us now if you would like to start buying gold
We are an East African gold trading entity that has been operating for more than a decade now. In addition to selling physical gold obtained from the Democratic Republic of Congo and Uganda; we also double as a broker and gold sourcing agency. Gold miners who would like to implement gold mining projects in the DRC, Uganda, Kenya, and Tanzania can contact for details on how they can set up and start operations. Start buying gold today. Your money is never safe in the bank nowadays. Contact us now so you can start buying gold.
