Global“Gold has broken an important threshold”: the multiple reasons for the clear...

“Gold has broken an important threshold”: the multiple reasons for the clear rise of this “barbaric relic”

Before giving explanations for this increase, the expert immediately specifies that the gold market is “very technical” so that “the part of psychology is very important there”. Intrinsic value calculations, often based on income generation, are irrelevant to gold since it has no intrinsic value.

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It is also very dangerous to take for granted certain correlations observed in the past such as the good performance of gold in periods of negative real interest rates. The recent rise in gold despite the rise in the cost of money is proof of this.

“Barbaric Relic”

It now remains to understand the clear rise of the yellow metal and other safe haven values ​​such as the Swiss franc in recent months.

”I hear that many central banks, especially Asian ones, have stocked up on gold. This explained the price stability. They wanted to diversify against the dollar,” underlines Jérôme van der Bruggen. This “desire for diversification” finds its origins in the Americans’ decision in February 2022 – at the start of the war in Ukraine – to restrict access to the dollar, particularly to Russians.


“The confidence that gold inspires is a pure matter of psychology”

And if central banks have fallen back on gold, which is not a very liquid asset, it is because it represents the safe haven par excellence. “Gold has been called the barbarian relic because it is a good keeper of value. It takes the same amount of gold today to buy the same amount of wheat as it did 2000 years ago. The confidence that gold inspires is a pure matter of psychology,” recalls Jérôme van der Bruggen.

While adding “that there is never a single reason on the markets to explain the rise of gold”. In his eyes, the yellow metal is also rising due to the context of fears over the “sustainability of budget deficits and the difficulty our leaders have in reducing them.” He takes the example of France, which is struggling to find the measures that will make it possible to raise the 10 to 20 billion euros needed to bring its deficit below the 5% mark.

Hedging instrument

Some experts also attribute the rise in gold to nervousness in the stock markets and fear of a crash. Historically, gold has a tendency to rise during periods of stock market crash and liquidity crisis, as we saw during the last stock market crisis in 2008. It is also for reasons of decorrelation that Degroof Petercam puts a tiny bit of gold (around 1%) in all portfolios. It is a sort of hedging instrument to protect against a fall in stock prices. “We make a mixture of decorrelating values” among which there may also be the Swiss franc (which also benefits for the moment from a somewhat “more rigorous”), explains the IOC. On the other hand, there is no bitcoin because “we do not have enough perspective on its decorrelating properties” even if cryptocurrency has the same characteristic as gold, that of having a “defined stock”.

Jérôme van der Bruggen, however, does not believe in a market correction. On the contrary, he says “quite confident” compared to current prices, which explains the bank’s choice to overweight stocks in the portfolios.

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First argument: “On is beginning to perceive certain benefits of technological innovation and digitalization. The market extrapolates these productivity gains to other sectors, such as the medical sector. Corporate margins are increasing.” Second argument: the anticipation of monetary easing which should go hand in hand with a cyclical recovery. “Forecasts of 10% profit growth in the United States are credible. And when profits climb, it’s good for the stock market”, he explains. While adding that the nervousness on the markets is above all linked to the uncertainty over interest rates. The whole question is when the Federal Reserve and to some extent the European Central Bank might cut rates.

Daily Global Times
Daily Global Times
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