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Gold probably won’t earn you a package this year

Analysts expect that after last year, when gold weakened by almost four percent, yellow metal wheat will not bloom this year either. Investment demand remains weak, so only retail is holding back the fall in prices. According to many, gold has lost its sex appeal. Cryptocurrencies compete with him.

The beginning of this year is marked by rising inflation and growing political tensions between the world powers. Theoretically, this sounds like an ideal scenario for anyone who believes in long-term growth potential of gold. But its his price on these reports it does not react with any rapid growth. Because gold does not generate any return, it is difficult for many investors to determine its “right” price.

Finding the bottom

After the successful years of 2019 and 2020, when gold strengthened by 19 and 24 percent, respectively, sobering came last year. Yellow metal weakened by almost four percent last year. In addition, most analysts believe that gold will be looking for a new price bottom this year rather than a growth feast.

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“We expect the reasons that weakened gold last year to persist this year,” said James Steel, chief precious metals analyst at HSBC. “While the global economy is slowing, growth is expected to remain above average in the coming years, combined with rising interest rates, discouraging the need to buy gold, which is historically seen as a safe haven.”

According to Steele, rising inflation has not yet persuaded institutional investors to increase their investment in the precious metal. HSBC lowered the expected average price of gold to $ 1,723 per troy ounce. The precious metal is currently selling for $ 1,822.

Analysts expect that the likely rise in interest rates by the US Federal Reserve in the second half of the year will have a further negative impact on gold prices.

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“With the Fed’s ultra-loose monetary policy approaching the end and monetary stimulus coming to an end, we expect support for precious metals to disappear in 2022,” analysts at the Australian bank ANZ write. “Although there has been talk of raising Fed rates for a year, rising inflation and real negative interest rates have so far saved gold from a major fall, ”They add.

New competition

To make matters worse, gold, which has long had the status of protection against the “bad policies” of central banks, has new competition. The cryptocurrencies challenge him to a duel. These, especially bitcoin, are increasingly found in the portfolios of ordinary investors.

Until recently, the world of digital currencies was too small to leave a visible mark on the demand for gold. But times are changing. The two largest cryptocurrencies, bitcoin and ethereum, now have a capitalization of $ 1.3 trillion (almost 28 trillion crowns), which is ten times more than two years ago and about a tenth of the value of all gold. The World Gold Council (WGC) estimates that there are 200,000 tons of gold in the world with a current value of $ 12 trillion.

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The year 2020 already showed where investors could go. Chris Wood, a sworn gold advocate at Jefferies Investment Bank, has lowered its recommendation on how much a pension fund should invest in physical gold. Instead of 50 percent it was only 45 and for the released five percent he recommended buying bitcoin. He did it again last November, increasing the cryptocurrency allocation to ten percent.

So far, wild fluctuations in the price of bitcoin may discourage conservative supporters of gold. Over the last five years, the price of gold has moved an average of 0.6 percent per day, with bitcoin it was 3.5 percent. This may not mean anything in the long run.

As JPMorgan analysts point out, The beginnings of the modern history of gold as an investment asset were also accompanied by high volatility. This was the late 1970s and early 1980s. Gold ownership was not allowed in the United States until 1974, and it took two decades for institutional investors to invest heavily in it.

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