Inflation is an extremely important factor for the gold market. Since the outbreak last year, central banks around the world have adopted extremely loose monetary policies, coupled with various fiscal stimulus, expectations of rising inflation have begun to rise, providing support for gold.
The (WGC) of the World Gold Council believes that what could happen next is either inflation or deflation, either of which will be good for gold.
Juan Carlos Artigas, head of research at WGC, says investors are likely to choose to hold gold in either environment.
When inflation expectations rise, investors look for assets that can hedge against inflation, such as gold. In a deflationary environment, cash is often very useful, but gold is also a good choice. "
Artigas pointed out that, coupled with extremely low interest rates, this environment is undoubtedly good for gold.
Inflation or deflation is likely to happen now, and deflation is likely to happen first. But as countries continue extremely loose monetary policy and massive stimulus, high inflation is likely to end up.
"if there is no consumer price inflation, then it is asset price inflation."
For this year's gold market, while the recovery in risk sentiment is negative, there are significant positive factors, including economic expansion, risks and uncertainties, opportunity costs and momentum.
Artigas pointed out that investors tend to forget that gold has two characteristics, investment and consumption.
"there is a link between gold demand and economic expansion, and consumer demand for gold will grow when the economy recovers."
This year, after the advent of vaccines and a recovery in the global economy from last year, coupled with very low interest rates, more stimulus and sharply growing deficits, this is good for gold demand.
In addition, the extremely high valuations of US stocks could also have an impact on gold.
"if fundamentals fail to catch up with US stock valuations, then the market will fall back. At the beginning of the economic recovery, investors will choose to hold other assets to avoid risk, and gold is that choice. "
WGC also pointed out that historically, gold tends to perform better when the president of the United States is a Democrat and both houses of Congress are in the hands of Democrats.
"because some policies may lead to higher deficits, increase the money supply and bring inflationary pressures."
So there are many supporting factors in the gold market this year.
