Has gold lost its shine?
Following last year’s Covid crash in financial markets gold was in the spotlight again after many years of sideways trading. It had a meteoric rise alongside equities and even hit a record $2k price before settling down again. Several analysts predicted a rosy future for the metal with a target price well above $2k for 2021 and beyond. This has not materialized and even with seemingly favorable conditions gold has been lingering in a range well below expectations.
Lower yields, weaker dollar and inflation expectations are all factors that should lead to a higher price of gold. However, when these have occurred this year, they have not led to a rally in gold bar once and it was short lived. This non reaction has puzzled many and begs the question whether gold still has a place in one’s portfolio especially since it has been known to be positively correlated with equities at times.
There are several reasons why people like to invest in gold. Foremost, it is perceived to be safe. That has to do with the long history of using the shiny metal as a store of value. From the pharaohs of old, to the treasuries of today, we have been hoarding gold for millennia and there is a reason we call it “precious”. Lest we forget, the world’s entire monetary system was once linked to the aptly called Gold Standard. Allegedly, gold is also an inflation hedge, but it has a rather dire track record.
Could Bitcoin and other digital currencies be stealing some of gold’s shine, especially with the younger and more tech savvy generation? After all, it can be used to buy items nowadays and companies accepting digital currencies will likely increase in the future. On the other hand, it’s impossible to buy anything at a shop with gold. I suppose that if we were to hit a real-life doomsday scenario, it would be useful to have gold and preferably easy to carry gold coins stashed away. But in a portfolio its use might become obsolete before long.