The steady increase in the gold price is a sign that there is a premium on gold as an asset class that stores value, said Johan Gouws, head of advisory services at Sasfin Securities.From the end of March last year to the end of last month, investment in gold grew by 53%. From the fourth quarter of last year until the end of this year’s first quarter, investment grew by 35%. Over the 20 years to the end of last year, investment grew by 13.3%, said Gouws.
If shares and property, for example, start to do well, that doesn’t mean that the gold price will also start to increase – in fact, its value may decline. “If you go and look at the effect that stimulus measures are having on the balance sheets of central banks and governments, there is a question mark over how sustainable this financial dispensation is, with governments printing money that is not flowing back to the economy or that is properly backed. Gold is then a good way to store value,” said Gouws.
“There is less gold in circulation and the price is usually pushed up when supply declines, but the demand side [as a result of worldwide lockdowns] is also being negatively affected. People who are sitting locked up in their homes, for example, they aren’t going out to buy gold jewellery.” Van Papendorp explains that the dollar-gold price over the past few decades has been driven by real interest rates, such as inflation-linked US government bonds. Real interest rates have been going down since the global economic crisis in 2008/09.
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