From 2011 to 2018, the price of gold fell by over 40%, dropping from $1920 to $1105. Since then, the trend has turned upward to reach a new peak, barely surpassing the previous one, and beginning a correction that could well turn into a trend reversal.
Gold has shown surprising resilience this year, unlike other investments such as stocks, cryptocurrencies, and government bonds, which have been particularly affected in 2022. This resilience is surprising given that gold has had to face strong headwinds, such as the appreciation of the U.S. dollar and the rise in real interest rates, against the backdrop of aggressive hikes in the Fed’s benchmark rate. Despite this, the yellow metal has stabilized around $1,700 per ounce due to high inflation and a still-tense geopolitical climate.
If one considers gold to be an essential investment for diversifying one’s portfolio, as it is considered over a very long period as a bulwark against the loss of purchasing power due to rising consumer prices. Even if the future evolution of inflation is highly uncertain, the tense geopolitical context is a supporting factor for the precious metal. In addition, the price of gold is influenced by factors such as demand from jewelry, those who want an alternative currency, or the evolution of the cost of gold production. We do not expect a collapse in the price of gold, but we consider that the current price level is consistent, pending developments on the fronts of interest rates and inflation.
This graph shows that over a 10-year period, an investment in gold would have yielded nothing. Although it experienced strong growth before 2011, like many markets at that time, your money remained immobilized during this period without earning interest or dividends. In case of a need for liquidity, you could suffer a significant loss by closing your positions or selling your physical gold at the wrong time, which is likely over a 10-year period.
The first argument almost proves that gold is not a safe investment. If you invest in something, the goal is for its value to increase over time, not decrease. If you have to lock up your money potentially for several years, it is important to be able to exit at any time without suffering a significant loss or earning a return (interest, dividends, etc.).
Gold attracts speculators due to its nature, and this is reflected in the charts, with very irregular duration and amplitude fluctuations. Unless you are an experienced speculator, there is a high chance of losing by entering or exiting the market at the wrong time. The fluctuations of gold make the French skeptical about its volatile and profitable nature.
Approximately 7-8% of French people hold around 2,500 tons of gold in the form of bars, coins like the Napoleon, or financial instruments (paper). Gold advocates consider it the best bulwark against inflation. Gold fluctuations depend on many factors, such as geopolitical conflicts, currency fluctuations, central bank monetary policies, etc.”