3 reasons why investors buy gold

Aberdeen Investments: 3 Reasons Investors Buy Gold Image in Public Domain / Pixabay

The price of gold benefited in 2020 from the economic uncertainty caused by the coronavirus. Considered a safe haven, it is a protection against the devaluation of the dollar and the massive deficits fueled by government stimulus efforts to curb the economic effects of covid-19.

The US federal budget deficit has reached a record $ 3.1 trillion during the fiscal year ending in September, according to the Treasury Department The data.

Gold has struggled to maintain levels near $ 1,900 as governments allow the rollout of vaccines to fight the pandemic, Market Watch reports.

Gold price Source: https://goldprice.org/

Steve Dunn, head of exchange traded products at Aberdeen Standard Investments, said he expects gold prices will exceed $ 2,000 an ounce in the new year, according to a phone interview with Kitco News.

“From everything I’ve seen, that would lead me to believe that this is probably not the last stimulus package, as some of the issues we face are structural issues that will certainly haunt us in 2021, d ‘from an economic point of view,’ he said.

At the very least, Dunn has said interest rates will not rise in 2020, which will remain strong support for the precious metal. And even without more stimulus, low interest rates will also lower the US dollar.

The bond market will likely be the biggest bullish factor for gold in 2021, Dunn said. The amount of negative yielding debt around the world is now valued at over $ 18 trillion, a new record as the new year dawns.

An asset manager headquartered in Aberdeen, UK, Aberdeen Investments has 46 offices and investment centers in 24 countries.

here is three reasons why investors buy gold, according to Dunn at Aberdeen Investments.

1. It can reduce the risk of the portfolio

Cash and bonds can increase portfolio efficiency, but gold is an attractive alternative because it is less affected by interest rates. Rising interest rates put downward pressure on bond valuations, which can make holding them less attractive to investors. Negative interest rates can push money returns to negative. The precious metal can help manage asset allocations and portfolio exposure, according to Aberdeen.

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Gold has a low correlation with stocks during economic growth and recession. It also has a low correlation with bonds, so it can diversify a portfolio by its allocation to stocks. In times of expansion, products that rely on gold, such as jewelry and technology, are often in high demand. In times of recession, it increases among those seeking financial refuge.

Investors tend to reach for it in times of fear. “We believe that a strategic, rather than reactionary, allocation to gold may be a brighter idea,” Aberdeen said.

2. Gold is a commodity that acts like a currency

As a physical object that you can hold in your hand, gold is a commodity and a global asset driven by supply and demand. It has been used for most of history as a medium of currency exchange due to its uniform quality. The world gold standard ended about 100 years ago. “Today, we believe its lack of credit risk makes gold an attractive reserve monetary asset among central banks,” Dunn wrote.

3. It is a potential defense against many forms of risk

Gold has a history of resilience during peak volatility, protecting investors during stock market crashes.

For example, during the global financial crisis, the biggest drop in recent history, gold outperformed the stock market as a whole. During negative market events, investor fear and uncertainty can increase, causing them to seek stable and defensive investments. Global equities typically experience massive sell-offs. Gold has historically performed well when global stocks have posted negative returns and large declines, according to Dunn.

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