Central Bank Policies Drive Gold Investments

Gold gained 11.1% during the quarter, while equities rose 6.2% and commodities gained 11.5%, according the Council. Bond yields fell and prices moved up by 3.3%.

While demand for gold reacted to perceived higher inflation risk, other factors were also at work. There is also an impact on currencies as countries seek a roundabout way of weakening currencies to promote exports. Third, there is an implied put option when central banks deliver stimulus, which acts to prevent significant declines in asset prices. And fourth, very low interest rates which should encourage spending often lead to increased savings instead.

The Council concludes:

The backdrop of negative real yields, a slow recovery and a likely continuation of expansionary monetary policies — with all the risks these present — provides further support to the long-term strategic investment case for gold.

The World Gold Council’s report is available here.

Paul Ausick