Gold Becoming A Beacon For Investors Amid Global Turmoil

Originally published on August 17, 2023

2022 and 2023 have been exciting for precious metals investors, and from the looks of it, this rollercoaster ride is really just starting. Up a whopping 35% since January 2020, these positive price trends in the gold market are showing no signs of slowing.

The Safe Haven in a World Adrift

More than just a symbol of wealth, this precious metal is a barometer, a beacon that captures global narratives and mirrors the turmoil of our times. Amidst turbulent stock markets, bank collapses, and crypto crashes, gold serves as a steady compass for investors.

The concept of safe-haven assets becomes a focal point during economic turbulence. These assets retain or increase in value during tumultuous times, providing investors a buffer against potential losses. In fact, the allure of gold becomes amplified in times of crisis.

With the recent collapse of financial institutions, crashes in the crypto market, and inflation running wild, more investors are turning to gold to safeguard their wealth. Its resistance to depreciation and its tendency to appreciate during volatile times make it an investment haven.

Global Inflation & Price Instability

Global inflation has become a growing concern, impacting economies worldwide. In 2023 alone, the U.S. has witnessed an inflation rate that hovers around 6% - a figure far higher than the ideal rate of 2%. The Eurozone too has seen a rise in its inflation, peaking at 5.2% in May 2023, which is the highest in nearly a decade.

Several factors are driving these unsettling figures. Global supply chain disruptions caused by the pandemic and subsequent lockdowns have led to increased production costs and prices. Moreover, the unchecked printing of money by governments to provide stimulus packages, though necessary for economies, has flooded markets with excess liquidity, further accelerating inflation.

The commodity market is no exception. According to the World Bank, food prices have increased by 20% since 2020 due to supply chain issues, and energy prices have skyrocketed due to growing demand and geopolitical instability. These price surges have significantly impacted consumers and businesses alike, leading to an increase in living and operational costs.

With the ongoing crisis in Ukraine and tensions in the Middle East adding to geopolitical uncertainties, there's no end to these inflationary pressures in sight.

In this unpredictable landscape, gold shines brighter than ever. Historically, in times of rising inflation and geopolitical instability, gold has often served as a reliable hedge. As inflation erodes the value of paper currency, the intrinsic value of gold becomes more appealing. As such, the escalating global inflation and price instability may continue to push more investors towards gold, strengthening its role as a safe haven in times of financial turmoil.

Wars, Political Instability, & Global Uncertainty

Over the past 5-7 years, the world has faced a series of daunting challenges, each contributing to an increasingly volatile global landscape. Political and societal divisions have been brought into stark relief, exemplified by Brexit in 2016, which sent shockwaves through the European Union and sparked a period of economic uncertainty. The annexation of Crimea in 2014, and the continuing conflict in Ukraine, have further stoked geopolitical tensions.

The unexpected advent of COVID-19 in late 2019 escalated these pressures exponentially. The pandemic caused the largest global recession in history, with more than a third of the global population at one point under lockdown. The long-term economic effects are still unfolding, with a robust recovery yet to be seen in many nations.

The US political landscape has also added to global instability. The unprecedented events of January 6, 2021, undermined democratic norms and further polarized an already divided country, fostering uncertainty about future political stability.

These major events, among others, have induced long-term effects and fostered conditions for future instability. For example, Brexit and the European immigration crisis have threatened the unity of the EU, while the effects of the pandemic have strained global healthcare and economic systems, potentially leaving them vulnerable to future crises.

In these times of escalating uncertainty and instability, gold's appeal as a safe investment grows. Its price typically rises amidst such upheavals, reflecting its status as a safe haven in times of turmoil. As long as political conflicts, economic crises, and societal instability persist, the attractiveness of gold as a stable investment is likely to endure. As the past has shown, when the world wavers, gold stands firm.

Gold and the Barometer of Global Uncertainty

Many investors even look at the price of gold as a barometer of financial stability and global uncertainty.

Just as a barometer measures atmospheric pressure and predicts weather changes, gold's performance can often hint at shifts in the global economic climate. Its price reflects the ebb and flow of investor confidence, the ripple effects of political decisions, and the undercurrents of social unrest.

Historical Performance and Future Projections

From the early 1970s, when gold was allowed to float freely in the market, it has experienced a steady increase in value. An ounce of gold purchased in 1978 for $192 would now be worth more than $2000.

Like stocks and real estate, gold has demonstrated a significant long-term return on investment. Yet, its unique advantage lies in its resilience during economic downturns. For instance, during the 2008 financial crisis, while the S&P 500 plummeted by 56.8%, gold prices soared by approximately 24%. Similarly, during the COVID-19 market crash in March 2020, when major stock indices fell by around 30%, gold held its ground, and by August 2020, had reached record highs. Hence, gold's historic performance and high liquidity not only provide a reliable store of value but also a potential profit during periods of market instability.

In addition, gold’s liquidity sets it apart from other investment options. “Gold is not just a safe haven; it’s also a very liquid asset,” says Collin Plume, Founder of Noble Gold Investments, a gold IRA company based in California. “While a home or an expensive piece of artwork becomes increasingly more challenging to sell during a downturn, it is almost guaranteed that you can find someone within 30 minutes of your home who will typically pay the spot price, or something near the spot price, for your gold.”

Gold chart

In light of the turbulence, many market experts like the U.S. Global Investors are now suggesting that the value of gold could potentially cross the $3000 mark in 2023. This projection paints a telling picture of gold's resilience amidst an increasingly volatile global market and highlights its continued relevance as an investment portfolio's stalwart.

Navigating the current global landscape, multiple factors are simultaneously driving an increased demand for gold and other precious metals. Economic uncertainties, political instability, inflationary pressures, and crises in the financial markets have all led to a resurgence in the appeal of gold as a safe-haven investment. There's little evidence to suggest that these drivers are diminishing. In fact, they may continue to intensify, reinforcing gold's role as a reliable hedge against volatility. Consequently, these circumstances bode well for the future price performance of gold, positioning it as a robust investment for times ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. and Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. © 2023. Nasdaq, Inc. All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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