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The first quarter of this year was the best quarter for gold since 1990. In the space of three months, the Gold price by almost 20% due to increasing uncertainty about the growth of the global economy and the stability of the banking sector. But in recent weeks, the gold price has fallen back a bit. Was the rebound short-lived?
A customer drew our attention this week to a article from the Wall Street Journal, in which the reader is warned of a fall in the price of gold. The customer asked us what we think about this. In the article, it is said that buying gold is still a speculative investment, as it does not yield interest or dividends. Therefore, it is virtually impossible to appreciate the yellow metal.
This is used by the Wall Street Journal as an argument against gold, but we expect this argument to play in favor of the yellow metal in the coming years. It is true that a position in the precious metal does not generate cash flow, but the same can be said for an increasing number of other asset classes. After all, how do you value a government bond when the expected cash flow over the entire term is zero or even negative?
Due to the extremely low interest rates of central banks, $6 trillion of government bonds already have a negative yield. The savings interest rate at the major banks in the Netherlands has already fallen to 0.5% and it is expected that this interest rate will also fall further towards zero. Lending your money to the bank (which is what you actually do when you put money in a savings account) or to the government therefore yields almost nothing, while you do run a counterparty risk. And you don't have that risk with buying physical gold.
If interest rates fall even further, the precious metal will therefore become more interesting from a purely rational point of view than safe alternatives such as savings and government bonds. After all, gold does not have a negative interest rate, at most costs for insured storage. If interest rates fall even further, it will be beneficial for precious metals.
Of course, you can get better returns from stocks, corporate bonds or crowdfunding projects. These generate income that you don't have with physical gold. But there is also a much greater risk involved. A company may have disappointing performance, decide to reduce or cancel the dividend and a crowdfunding project may also be disappointing if the company you lend money to is no longer able to repay.
Then we have the alternative of real estate. Due to rising house prices and the scarcity of housing in certain urban areas, it can be interesting to invest in real estate. This also yields a higher return than gold, but on the other hand, an investment in real estate is much less liquid. Also, you usually need a much larger amount to invest in real estate. Buy gold at Hollandgold is much more accessible, because that is already possible with a gold bar of 5 grams or 1/10 troy ounce gold coins.
The Wall Street Journal writes that the Gold price is likely to fall again, as financial markets have calmed down again after a turbulent period in January. That may indeed be an explanation for a further decline in the gold price.
Like the Wall Street Journal, we can't see into the future, but fundamentally we think that negative interest rates and the extremely accommodative monetary policy of central banks will be positive for gold in the longer term. Analyst Georgette Boele of ABN Amro is also of the opinion that the trend in the gold market has been reversed. It expects a price of $1,300 per troy ounce by the end of this year. What the price in euros will do is highly dependent on the exchange rate.
