At Gold & Co, we take the view that it is currently a very good opportunity to get into investment gold. I even assume that the price will visibly pick up again soon and could rise by up to 30% by the fall.
Gold is far from dead
Even though many prophets of doom and gold haters would like to write off gold and silver now that prices are going down, no one who holds gold needs to get nervous.
The current price decline can be seen as a normal seasonal development, because in the past years the gold price has often reacted similarly at this time of year.
If we look at the development of the gold price over the last 25 years, we see that the gold price does indeed exhibit a certain seasonal rhythm. Thus, a drop in the price in spring is quite normal, before the price usually rises strongly in midsummer.
In addition to this seasonal trend, there is also the economic and political environment. In 2021, of course, this is dominated by Corona and the measures taken against it.
This includes the enormous expansion of money supply in the major economies of the U.S. and the EU, which is primarily related to the enormous economic aid and rescue packages provided by governments and central banks.
Despite all these measures, we are still in the COVID-induced recession. And the "big end" may well still come if many small, medium-sized and even large companies still slip into insolvency despite this aid.
Politically, too, the COVID crisis hit many countries hard and showed that even in the Western democracies, which are so free, many freedoms that were previously taken for granted are suddenly up for discussion.
These are all factors that support the gold price in the long term. The expansion of the money supply is threatening to lead to inflation, which, together with increasing political uncertainty, is leading to increased demand for assets for asset protection.
The gold price and monetary policy
The current decline in the gold price is primarily due to increased interest rates for long-term U.S. government bonds, as well as a relatively strong dollar.
Due to the expected yield on these fairly safe bonds, investors are currently switching into the bond market and away from gold.
At the same time, government debt is at a record high, so states and central banks have no interest in rising real interest rates, which would be very difficult to bear. Therefore, it can be assumed that the Fed, the ECB and other central banks will sooner or later further expand their lax monetary policy in order to artificially depress interest rates through even more liquidity.
The consequence, however, would be even stronger inflation. All the preconditions for rising inflation are already in place, but the markets - blinded by the profits that can be made with other assets - are currently ignoring them.
At the latest when the inflation rate rises in the coming months, the gold price will visibly pick up again. However, the whole thing will probably happen sooner, as soon as the Fed and other central banks announce the first monetary policy countermeasures.
The currently declining gold price is not necessarily an expression that the bull market is over. Many signs rather indicate that the gold price will soon rise again. One should therefore see the current price as an entry opportunity, consciously use and now buy gold use. As long as you always see gold as a long-term asset protection and never as a short-term speculation object, you will do well with investment gold.