He said, ‘The primary reason for investing in commodities, and especially gold and silver, should always be as an inflation hedge. Given the printing of money by the world’s central banks through quantitative easing, there is every reason to argue that higher inflation is coming in the future.
Gold and silver investments in particular remain very under-owned. Some investors fear the prospect of an increasing base interest rate in the US is reason alone to avoid these types of investments. However, although past performance is not a reliable indicator of future results, the gold price has tended to rise from the beginning to the end of Federal Reserve (Fed) hiking cycles. In the last four instances when the Fed embarked on a hiking cycle, in three of the four instances gold saw +10 per cent to +20 per cent returns from beginning to end.’
He continued, ‘The environment for gold investments remains positive. In the background, global record debt burdens have not magically vanished. These make global growth highly sensitive to any real increase in interest rates and the cost of servicing these debts. This is a key reason to expect that central banks will be highly wary of raising interest rates too quickly and that real interest rates (a key driver of gold prices) should continue to remain very low and have the possibility of being negative as inflation accelerates.’
Read interest rates are the rate you hear advertised minus the inflation rate of the day.
Many market participants take the view that rising nominal interest rates, which is the number you hear Mark Carney talk about, is bad for gold, because gold pays no income, and so is less attractive to investors than simply retaining cash.
But if the nominal interest rate remains below the inflation rate, then holding cash means a loss in real terms.
Joe Foster, strategist for Gold and Precious Metals at VanEck, believes that investments in the shares of gold mining companies are likely to do better than buying the metal itself. He opined that while the price of gold has risen, the shares haven’t for no discernible reason, offering a lot of potential upside.