Investors have long been in love with gold, and the price of the metal has increased substantially over the past 50 years. Like most commodities, supply and demand are incredibly important, but gold also retains additional value. Government vaults and central banks are an important source of demand for metal. For this reason, many investors prefer to withdraw their money from riskier assets, such as stocks and digital currencies, and convert it into gold and precious metals.
This diversity in demand for gold and the self-balancing nature of the gold market underpin the strong qualities of gold as an investment asset. Even better is the fact that some experts estimate that demand for bullion is rising slightly more than the current rate suggests. Basically, this means that the price of gold has the potential to grow despite the Federal Reserve's interest rate hikes, increasing the attractiveness of the metal as a safe haven and therefore making it even more attractive to investors. Nowadays, geopolitical tensions, the desire to keep gold as a hedge against inflation and, to a certain extent, the actions of the Federal Reserve help boost investor demand for this precious metal.
Others, such as Nicky Shiels, director of metallurgical strategy at MKS PAMP GROUP, say that gold will be able to “tolerate increases in Federal Reserve interest rates” thanks to “stiffer” (read “persistent”) inflation. That is why, as soon as the news of Russia's invasion of Ukraine broke, savers and investors rushed to seek the safety of gold, once again confirming its age-old role. Since the start of the war in Ukraine, many gold traders around the world have seen their sales soar. Since the early 1970s, the amount of gold purchased annually has nearly tripled and gold markets have flourished around the world.
Inflation has been all over the news for more than a year and has undoubtedly been one of the main factors driving investor interest in gold and precious metals, which are considered a traditional hedge against rising consumer prices. Therefore, for the time being, it seems that inflation will continue to be one of the key factors pushing investors to add gold to their portfolios. While that may not seem like much to stock and bond traders, it's significant in the gold market. As you probably already know, investors who move their capital to or from gold can move the price of gold and build momentum in the market.
Everyone and their mother are studying precious metals now, said Stephen Flood, executive director of physical bullion brokerage agency Goldcore.