Gold, the world’s number one safe-haven asset, rose by 0.3 percent to $1,774.39 per ounce on Thursday amid rising concerns over the spread of the Delta coronavirus variant.
The precious metal moved further away from a two-month low hit on Tuesday, gold might have called the bottom for the bearish trend started when the U.S Fed announced possible rates increase in 2023.
Rising cases of the Delta variant have prompted France to delay the easing of restrictions in the Landes region, while infections have also surged in Asia.
If the rise of the variant forces authorities to introduce new lockdowns, especially in Europe and the United States, then we may be looking at the risk-averse safe haven trade offering support to gold, Ricardo Evangelista, a senior analyst at ActivTrades.
Also on investors radar is Friday’s U.S. nonfarm payrolls that could provide more clues on timeline for Fed’s shift in monetary policy. The weekly jobless claims data is due later on Thursday.
Gold’s 10-Year Return Less than 2%; Global Demand for Investment Gold Plunged by 60% YoY
During times of risk and market volatility, investors look for high-quality assets that can save their capital and minimize losses. History has shown many times that gold works as a good store of value in such times of uncertainty. However, the 10-year return for gold investments plunged deep below investors’ expectations.
According to data presented by BlockArabia, after turning negative in August, gold’s 10-year return rose to just under 2% this week.
A Sharp fall After Fantastic Return Rates in 2019 and 2020
For the last 50 years, gold has been the perfect stock market hedge, with its most impressive performance in the 1970s and 2000s. From 2000 to 2009, during the worst decade for the S&P 500 after the 1930s, the S&P 500’s annual return was just over 1%. At the same time, the gold investment return amounted to 18% per year throughout the entire decade.
According to St. Louis Fed data, positive returns on gold investments continued in most years during the next decade. In 2002, gold’s annual investment return hit 25.6%. Five years later, this figure jumped to almost 32%. After fantastic 2009 and 2010, the following years witnessed a negative trend, with the annual investment return for the precious metal reaching the deepest point of -27% in 2013.
Four years later, in 2017, the annual investment return recovered to 12.7%. Finally, in 2020, gold became an asset with the second-highest yearly investment return behind silver, bringing an average return of almost 25% that year, much more US stocks and corporate bonds or EAFE stocks.
However, statistics show that 2021 witnessed a sharp fall, with gold’s YTD investment return plunging to -7.37%.
Although 3-year and 5-year investment returns for the precious metal remained high, amounting to 46% and 31% as of this week, respectively, the 10-year return dropped significantly over the last two months. On August 10, it amounted to -6.56% and then slipped to -7.54% in the first days of September. Statistics show this figure manager to recover a bit a hit 1.97% on October 4th.
Global Demand for Investment Gold Plunged by 60% YoY
Investors see gold as a ‘safe haven’ in times of market volatility, just like those triggered by the COVID-19. That is why global demand for investment gold surged to all-time highs last year.
In 2019, before the COVID-19 hit, the global demand for investment gold amounted to an average of 300 metric tons per quarter. By the end of March 2020, this figure jumped by 93% to 556 metric tons. The increasing trend continued in the second quarter of the year, with global demand for investment gold hitting over 584 metric tons, almost double the amount in the same quarter a year before that.
The World Gold Council data show the global demand for gold for investment purposes hit a record-breaking 1,140 metric tons in the first half of 2020, the highest figure so far.
However, the following months have witnessed a noticeable downsizing trend, with the figure falling to 138 metric tons in Q4 2020. Although global demand for investment gold recovered and hit 465.2 metric tons in the first half of 2021, that is still 60% less than in the same period a year ago.
Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal
Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.
Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.
While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.
“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.
“Gold remains an yield story and that yield story is very much tied back to the tapering story.”
A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.
“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.
A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.
Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.
Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.
Silver rose 0.9% to $22.61 per ounce.
Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.
Global Demand for Investment Gold Plunged by 70% YoY to 161 Metric Tons in Q1 2021
Last year, investors flocked to gold as stock markets crashed on a gloomy economic outlook due to the spread of the COVID-19 pandemic. In the second quarter of 2020, global demand for investment gold surged to over 591 metric tons, the second-highest level since 2016. However, the investors’ demand for gold has dropped significantly this year.
According to data compiled by AksjeBloggen, global demand for investment gold plunged by 70% year-over-year to 161 metric tons in the first quarter of 2021.
The Lowest Quarterly Figures after Record Gold Investments in 2020
In 2016, the global gold demand amounted to 4,309 metric tons, revealed Statista and the World Gold Council data. By the end of 2019, this figure rose to 4,356 metric tons. Investment gold accounted for 30% of that amount. Worldwide gold jewelry demand volumes reached 2,118 metric tons that year. Central banks and technology followed with 648 and 326 metric tons, respectively.
Statistics show the global demand for investment gold surged amid the COVID-19 outbreak, growing by 35% YoY to almost 1,800 metric tons in 2020. Demands for gold used in technology also rose by 17% to 383.4 metric tons, while central banks and other institutions bought 326.2 metric tons of gold in 2020, a 50% plunge in a year.
However, after record gold investments in 2020, the global demand for gold for investment purposes dropped to the lowest quarterly level in years.
The Price of Gold Dropped by 5% Since January
The average gold value tends to increase during a recession, making it an attractive investment in uncertain times. In February 2019, a troy ounce of gold cost $1,320.07, revealed the Statista and World Gold Council data. By the end of that year, the price of gold rose to $1,479.13.
The gold price continued growing throughout 2020, reaching an all-time high of over $2,000 in August. By the end of the year, the precious metal price slipped to $1,864 and then rose to over $1,950 in January 2021.
However, the first quarter of the year brought a negative trend, with the price of gold falling to $1,684 by the end of March. Statistics indicate the price of gold stood at around $1,860 last week, a 5% drop since the beginning of the year.
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