BLOG
Why is gold underperforming despite Covid induced global uncertainty and inflation?
What's Buzzing:
Why is gold underperforming despite Covid induced global uncertainty and inflation?
Context:
Since September 2020, gold prices have underperformed compared to other asset classes. Gold prices declined from $2120 making a low of $1678 last year. While rest of the asset classes witnessed significant upsides, gold has been hovering around $1800 levels for the last few months.
Our Perspective:
There are two primary drivers of gold price i.e. inflation and global uncertainty. Inflation, globally, is inching up. In the US, inflation remained above 5% for five consecutive months. Even the price pressure was felt in other major countries like Europe and the UK. In Europe, inflation accelerated to its highest level in 25 years while in the UK inflation hit a 10-year high. However, it is still benefitting gold as most of the inflation is mismatched demand supply of product and logistics induced by Covid. Global uncertainty, on the other hand, is reducing as the global economic growth is improving prompting central banks to purse accelerated tapering. Also, gold lost some of its shine to emergence of cryptocurrencies like Bitcoin, among others. However, gold is still attractive as an alternative investment and is a good hedge against global uncertainty given the new Covid variant Omicron. Also, global inflation can become sticky as highlighted by some central banks recently. Apart from that, investment in bitcoin and other cryptocurrencies is more speculative and carries the risk of illegitimacy. Even the Reserve Bank of India has raised concerns over cryptocurrencies posing macroeconomic and financial stability risks.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
Related content
Blogs
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Video
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.