- August 23, 2019
- Rocky Mountain
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Gold Demand Will Continue to Rise Even If Recession Hits: World Gold Council
Many factors are driving the stock markets down. From the fear of recession to high geopolitical risk and even high inflation, everything is leading to underperformance of the stock market. Due to this, gold prices and demand are rising, said the World Gold Council in its latest report.
Gold has been performing well as an asset in recent times. It ended the first half of 2022 with an increase of 0.6%. It rallied when the Russia-Ukraine war unfolded. Hence, the investors sought high-quality and liquid hedges. They wanted to invest smartly during increased economic uncertainty, said World Gold Council in its mid-year review. WGC also mentioned that gold's stabilization was in response to a " tug of war between rising interest rates and a high-risk environment." The London-based council also stated, " The latter was a combination of persistently high inflation, as well as likely support from the extended conflict in Ukraine and its potential knock-on effects on global growth."
The Rising Fear
The fears of global recession have increased suddenly amid rising inflationary pressure, the Russia- Ukraine war, and steep interest rate increases by central banks.
Strong Demand
The Global gold demand rose 24% in the first quarter of 2022. It was largely driven by strong ETF inflows, according to the WGC report. North American and European funds attracted most of that investment during the first six months of 2022. US fund holdings increased by 133 tonnes, $8.1 billion, and European funds added 119 tonnes or $7.5 billion, said the report. Funds in other regions like Saudi Arabia, the UAW< South Africa, Australia, and Turkey, increased by
just 2 tonnes.
The Future of Gold Demand
The WGC also mentioned that despite the " picture of strength for the second half of 2022", gold will continue to face the same two key headwinds from the first half of 2022 a potentially stronger dollar and higher nominal interest rates.
Why Demand for Gold Rises in Times of Recession and Global Economic Uncertainty
The demand for gold usually rises in times of recession and global economic uncertainty, which is now happening due to the rising geopolitical threats. Here are a few reasons why it happens.
1. Gold is a Commodity
Whenever there is an increase in GDP, investors prefer investing in bonds to get maximum profits from their investments. Investing in gold is preferred because there is no paperwork or bond involved in the process. Gold is a commodity in itself. For instance, if you invest in a company ABC and the investment is $1,000, you will get a fixed amount of profit from that company every month. However, if there is a recession or depression, the company might lose and even be bankrupt. So, your investment might be at risk as the company will have to cancel the bond.
2. Gold is Independent
When a recession occurs, the shares of many companies go down, and the stock markets suffer. Investors lose a lot of money due to that. Gold is free of that risk as the prices of gold don't go down when the stock market is going down.
3. Central Banks Reduce the Repo Rates
During a recession, the central banks of countries reduce the repo rates. So, investors get lower interest rates on fixed-income methods like savings deposits. They seek options with high investment returns, and gold can be an excellent choice in such times.
4. Purchasing Power Goes Down
Many people do not invest money and prefer to keep cash at home or at the bank. This habit is not very beneficial as the dollar value will decrease with time in times of recession as inflation is high. In contrast, the value of gold is high, so investors get better returns on their investments.
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References
https://www.thenationalnews.com/business/money/2022/07/08/gold-prices-to-remain-elevated-amid-global-economic-uncertainty/
https://www.jagranjosh.com/general-knowledge/gold-during-recession-1588590219-1
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