Gold still “one of best performing asset classes,” says Charlie Betts

Despite its relative underperformance since the highs of last August, gold remains one of the best performing asset classes available, writes Betts Group managing director, Charlie Betts.  

Recent tumultuous scenes around the changing of regime in the US and the continued havoc being reaped on the global economy by Covid-19, may make it a little surprising that gold hasn’t performed better when compared to other precious metals and equity markets. 

However a deeper dip into the supply and demand fundamentals of the whole precious metal group, provides a degree of illumination for the current lull. 

Longer term prospects for precious metal prices continue to look robust and it is also important to keep sight of the fact that gold posted an annual return of 24.6% when taking 2020 as a whole.

A safe haven for investors

Gold’s dramatic rise to an all-time high price of $2061/oz in August 2020 was well documented. 

Since that point, whilst witnessing some sharp volatility, the price has declined for six months and currently stands at $1817/oz, nearly 15% below that highpoint. 

With new variants of Covid-19 triggering repeated lockdowns and a surge in cases and with the extraordinary growth in budget deficits across the world looking set to trigger a lengthy period of synchronized currency debasement across the globe, gold seems like an obvious safe haven for investors seeking long-term value. 

Indeed, gold ETFs saw record inflows in 2020 and demand for coins and bars also increased. However, overall demand for gold fell by 14% in 2020, driven by a 34% decline in consumer demand from jewellery markets and 7% decline in demand from the tech sector. 

Although supply was affected, it only fell by 4% leaving the market with a substantial deficit not fully filled by investment demand. 

Central bank buying also slowed in 2020 (although notably central banks remained net buyers). With interest rates around zero, the opportunity cost of holding gold is minimal and with inflationary pressures looming and synchronized currency devaluation continuing, the case for a substantial increase in gold prices in the medium to long term is extremely strong. 

However, until consumer demand rebounds from Q2 2020, a market surplus is likely to continue to suppress prices to an extent. 

This article is an excerpt taken from the February 2021 edition of Materials Recycling World, the market-leading business title for the recycling and waste management industry.

To read the article in full, including an expert analysis of silver, platinum and palladium market performance please visit: material-focus-precious-metals-12-25-02-2021/