The WGC's head of research talks about his outlook for gold
London (Dec 7) The World Gold Council's (WGC) global head of research Juan Carlos Artigas has said that there are two competing forces in the gold market at the moment. The inflation hedge trade as investors look to protect themselves against the risk of costs rising. The other is the opportunity cost, in regards to the speed and strength of interest rate rises and this could create a headwind for gold. Having said that Artigas has the view that the risk of higher inflation will outweigh the opportunity cost because inflation could become more persistent. In addition to this, he noted that the impact of higher interest rates could be priced in "to a degree".
Artigas then explained the recent WGC survey results where many gold and non-gold institutional investors said they want to increase their gold holdings over the next 3 years. He said that some of the firms are looking to structurally change their strategies to adapt to the ultra-low interest rate environment that we have now become accustomed to. He said that the low-interest-rate environment meant that investors pushed into riskier assets but want to hedge some of that risk with gold.
In terms of gold performance to the rest of the commodities landscape, Artigas said that other commodities have outperformed gold recently. He noted that if you go through other historical inflationary cycles that gold has then caught up later on and outpaced the rallies seen in other more industrial commodities. He also said not to forget about central banks. Gold is a tried and tested tool for central banks and will continue to be an important component of their strategic holdings. As time goes on more investors and central banks will increase their exposure to gold due to the ongoing issues with inflation.
Gold recently has been pretty static. During the run-up to the COVID-19 pandemic, gold provided some excellent returns following the money printing spree. Since then the taper talk and potential rise in interest rates have stalled the progress of the yellow metal but the emergence of new coronavirus variants could be a catalyst for change as it is hard to tell right now what impact they could have on policy at the moment.
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