Gold: record purchases and rising price, is it worth investing in now?

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In April, record purchases for gold funds: EFTs reached $ 9.3 billion in new capital raised in bullion, in a month increase of 170 tons of physical gold bought as underlying. Gold price continues to rise. Due to the uncertainty over the Covid-19 crisis, gold confirms its role as a safe haven for investors and is replacing investments in government bonds, almost all of which have zero or negative returns.

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Gold ETF purchases 9 billion dollars in April, mainly in the US

The uncertainties due to the coronavirus pandemic crisis bring investments in gold to the maximum, as demonstrated by the April purchases made by ETFs with underlying gold. Listed funds have set a new record with 9.3 billion dollars (8.6 billion euros) of new capital raised in ingots. In concrete terms, these are new purchases for 170 tons of gold in just one month (+ 5.1%). The availability of physical gold, the underlying of this type of ETF, also rose to a new record level which is now equal to 3,355 tons.

The data comes from the trade association, the Word Gold Council, which emphasizes that the growth in flows has involved all countries but has been stronger in the United States.

Gold price highest since 2012

While almost all the other asset classes have suffered generalized declines, gold prices reached the $ 1,700 an ounce area, the highest since 2012. The deep falls of the stock exchanges, together with the real returns to zero, have favored this situation.

Since the beginning of the year, gold prices have risen by 12% in dollars and by 16% in euros. The rise was mainly in April, due to the concern that the $ 2.2 trillion stimulus program launched by the Trump administration, in combined with the Federal Reserve’s expanded quantitative easing program, it can increase inflation.

It seems obvious to speak of effects of safe haven, but the large increase in gold investments is attributable to a strategic change in valuations, because the condition of negative real rates is transforming gold into a sort of substitute for government bond investments, now almost all with zero returns (an interesting exception are the China government bonds).

Is it worth investing in gold now? Probably yes

The prospect of a prolonged decline in markets, low real yields and higher inflation should push gold prices higher in the coming years. Lower purchases in the jewelry segment and a stronger dollar are unlikely to defeat the yellow metal’s safe haven status.

For analysts, in this context, investors would do well to allocate at least a small part of portfolio in gold, to defend themselves against the possibility of further winds against the macroeconomic level.

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