WGC: Gold outlook remains positive due to low interest rates

The gold price may benefit from low interest rates and loose monetary policy in the near future. This is what the World Gold Council in a semi-annual update. At the beginning of this year, the gold price was still under pressure due to rising interest rates, but now the market seems to be moving in the other direction again. Moreover, the gold price has fallen somewhat, making it attractive to buy again.

The development of the gold price in the first half of this year confirms that the precious metal reacts strongly to the development of interest rates. A positive sentiment about the recovery of the economy led to higher interest rates at the beginning of this year, making gold less attractive. The Gold price and with it the demand for investment gold. However, the demand for jewellery in Asian countries increased, so that the price decline was limited.

Central banks buy gold

The World Gold Council expects central banks to stick to a very loose monetary policy with low interest rates and asset purchase programs for the time being. In fact, the Federal Reserve and the ECB have already indicated that they will tolerate higher inflation. Interest rates are therefore expected to remain very low for a long time. As a result, more investors will consider gold as an alternative to low-yielding government bonds.

It is not only private individuals and investment funds that will be more likely to benefit from low interest rates Buy gold. Central banks have also added more precious metals to their reserves in recent months. At the end of last year, the purchases of gold by these institutional players almost dried up, but in recent months we have seen a return to the Strong increase in the purchases. The World Gold Council expects central banks to buy at least as much gold this year as they did last year.

Inflation favorable for gold

Higher inflation can also provide a boost to the price of gold. According to the World Gold Council, gold prices rose by an average of 15% in years when inflation was above 3%. That is much more than the average price increase of 8.2% per year since 1971. Historically, the precious metal offers long-term protection against currency depreciation. When inflation is high, the demand for the precious metal will increase.

Several factors influence the price of gold (Source: World Gold Council)

Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.

This contribution was made from Geotrendlines