Riskier investments like stocks or other commodities were more attractive. The US dollar is also considered safer.
Stock boom, rising energy prices, real estate becoming expensive: a lot has increased in value in the past year. But not gold. Anyone who invested their money in shiny precious metal at the beginning of 2021 will have lost around 4 percent 12 months later. And this despite the fact that gold was once considered a safe investment in uncertain times, as we are experiencing in this pandemic.
Gold competes with dollars and stocks
Nowadays, the US dollar is more of a safe haven, says investment strategist Simon Lustenberger from Zürcher Kantonalbank ZKB. “When the US dollar strengthens, gold tends to depreciate. Gold today has less of the status of a safe haven and the price is mainly determined by the monetary policy of the central banks. “
Accordingly, gold is relatively less attractive. Risky asset classes such as stocks or commodities, on the other hand, are more in demand. According to Lustenberger, these plants have benefited from the positive economic outlook.
Gold in times of inflation
In many places the rate of inflation has risen, for example in the USA, in the euro area. According to the investment expert, this can be a favorable environment for gold. “The high inflation can have a positive effect on the gold price. However, the financial markets assume that inflation is only temporary and inflation expectations are that inflation will fall again next year. ”
For example, energy prices would fall again this year. This will also have a negative impact on inflation. “And that’s why gold is no longer in demand with investors.”
In order for gold to become more attractive again for investors, the central banks would have to become more expansive again or remain expansive, says Lustenberger. “We’re not seeing that this year. We assume that, for example, the US Federal Reserve will become more restrictive and raise interest rates three times. And that tends to weigh on gold.
Simon Lustenberger from the ZKB suspects this year will also be a difficult one for the precious metal. “Overall, we expect a price decline of around five percent this year.”