Gold will soon regain its lustre

Despite roaring commodity prices and central bankers stoking inflation, gold is being left behind. But that won't last.

“Everything’s glittering except for gold”, writes Mike Bird in The Wall Street Journal. You’d think these would be good times for gold. Commodities are roaring and central bankers seem keen to stoke inflation. Yet the yellow metal is being left behind. Trading at around $1,810/oz (£1,280/oz) this week gold is still more than 10% short of its early August highs. Even silver has been attracting more interest of late thanks to Reddit traders. 

The idea that the surge in bitcoin, dubbed “digital gold” by some, is overshadowing the real thing has become a market commonplace, says Joe Weisenthal on Bloomberg. But it isn’t true. Bitcoin is really a “risk-on” asset that is more comparable with a stock like Tesla. Gold, by contrast, is a traditional safe haven strongly influenced by real interest rates (ie, interest rates adjusted for inflation). The metal’s main drawback as an asset is that it pays no interest, so when real interest rates rise – as they have done so far this year – investors tend to sell gold to buy up other assets. 

Gold has had a “sour” start to the year, says Myra Saefong in Barron’s. Yet the longer term outlook remains encouraging. The current market rally rests on the unsteady base of “government stimulus and money printing”, says Peter Grosskopf of investment manager Sprott. Soaring US debt levels and a more inflationary outlook could yet prove a “tailwind” for gold.

Recommended

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
What's behind Sri Lanka’s crippling debt crisis?
Emerging markets

What's behind Sri Lanka’s crippling debt crisis?

Sri Lanka has been hit by a triple whammy of economic shocks and has gone to the IMF for a bailout. It may just be the first domino to fall in a globa…
20 May 2022
Investing in drugmakers: uncommon profits from curing rare diseases
Share tips

Investing in drugmakers: uncommon profits from curing rare diseases

Treatments for medical conditions with only a small number of sufferers can still be very attractive for pharmaceutical companies and investors becaus…
20 May 2022
Share tips of the week – 20 May
Share tips

Share tips of the week – 20 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022