E The End Of The Gold Rush?

So far this year, the value of the USD has been making modest gains when compared to other currencies. This is due to the general market optimism surrounding the economic recovery of the US from the coronavirus, not to mention the $1.9 trillion coronavirus stimulus bill recently passed by the US senate. This bodes well for the dollar, as it will once again establish itself as a safe-haven currency. In turn, this could lead to investors selling off their gold holdings.

The Fall in Gold ETF levels

The price of gold had been heavily supported last year by the rise in Exchange Traded Funds. These flows are now rapidly declining and that has been helping gold move lower more rapidly. The graphic below shows the steady decline in levels this year.

(Click on image to enlarge)

 

The rise of digital gold?

While the short-term appeal of gold might be affected by the recovery of the USD, we should not be concerned by the long-term significance of gold as an asset. Over the years, it has established itself as a safe-haven asset. Should current market optimism wane and plans to lift lockdown restrictions become delayed, we could see a sudden shift in investor sentiment and substantial price growth for the asset.

If we look at the UK market, a survey of 950 investors by HYCM in January this year revealed that 19% are planning on investing in gold in 2021 – an increase of 5% on Q1 2020’s figures. This demonstrates the underlying attractiveness of gold in times of uncertainty.

One final point to note is the notion that gold could be surpassed by the rise of a new digital gold – Bitcoin (BTC). Over the last three months, BTC has become a trending topic of discussion amongst financial commentators. Not only has the digital currency surpassed $50,000 per coin, but analysts are also confident the price go could above $60,000 as more retail investors and institutional funds come to accept its role in the financial market.

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Disclosure: Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of ...

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