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Surging Equities Reduce Allure of Gold as Inflation Rages On - MiningNewsWire
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Precious metals such as gold have traditionally enjoyed safe-haven appeal in times of political and economic upheaval as they can retain their value even as other assets and fiat currencies depreciate.</p> <p>In past years, geopolitical turmoil and economic slowdowns have consistently increased investor interest in gold as investors have sought to store their money in nondepreciating assets. A<a href="https://thewire.in/banking/us-regional-banking-crisis-far-from-over" target="_blank" rel="noopener"> mini-crisis </a>in the U.S. regional banking sector in May significantly increased demand for gold and temporarily pushed gold prices to almost record highs.</p> <p>However, although the global economy is currently dealing with inflation due to issues such as supply chain disruptions and a food and energy crisis, gold isn’t attracting much interest from investors looking to protect their money from depreciation.</p> <p>By Aug. 18, 2023, total holdings in more than 100 World Gold Council-tracked gold ETFs dropped to 3,348 metric tons, the lowest level since April 2020. Gold prices have also fallen by around 9% from their May highs to hit a five-month low of $1,890 per ounce.</p> <p>Although conditions are ripe for gold and gold-backed assets to perform positively, several factors are causing gold demand and prices to drop. Metals Daily chief executive Ross Norman says the metal has “<a href="https://www.mining.com/web/graphic-robust-equities-erode-golds-safe-haven-allure-as-etf-holdings-fall/#:~:text=fallen%20into%20disfavour" target="_blank" rel="noopener">fallen into disfavor as a hedge</a>” for several institutional investors, pointing to increasing evidence of gold’s <a href="https://www.entrepreneur.com/money-finance/why-gold-isnt-the-ideal-hedge-against-inflation-in-2022/436449" target="_blank" rel="noopener">diminishing effectiveness as a hedge</a> against inflation and economic uncertainty.</p> <p>One of the main reasons why demand for gold has dampened in recent years despite relatively poor economic conditions is the consistent interest rate hikes by the U.S. Federal Reserve. The Fed has<a href="https://www.nbcnews.com/business/economy/interest-rate-hike-july-2023-how-much-higher-federal-reserve-rcna96210#:~:text=Federal%20Reserve%20raises%20interest%20rates%20by%200.25%25&text=The%20Federal%20Reserve%20announced%20Wednesday,inflation%20in%20the%20U.S.%20economy." target="_blank" rel="noopener"> raised benchmark interest rates</a> for several months in a row to try and combat inflation by reducing the amount of money going through the economy. These interest rate hikes made assets that paid interest much more attractive compared to gold, which doesn’t pay interest, and<a href="https://www.cbsnews.com/news/how-the-feds-interest-rate-hike-affects-gold-investing/#:~:text=While%20not%20guaranteed%2C%20the%20price,inverse%20relationship%20with%20interest%20rates." target="_blank" rel="noopener"> pulled investors away</a> from gold to other interest-paying commodities. With the risk of depression in the country reducing, Next Generation Research head Julius Baer says there is no need for institutional investors to purchase massive amounts of gold.</p> <p>The precious metal has also faced increased competition from rival safe-haven commodities such as <a href="https://www.morningstar.com/markets/4-reasons-bond-yields-are-rising#:~:text=Most%20notably%2C%20the%20yield%20on,bond%20market%20has%20suffered%20losses." target="_blank" rel="noopener">Treasury Bonds</a><u>,</u> which also earn interest, unlike gold.</p> <p>Metals Focus managing director notes that in the meantime, gold will still retain interest from investors <a href="https://www.cbsnews.com/news/how-does-gold-diversify-your-portfolio/#:~:text=Gold%20can%20diversify%20your%20portfolio,end%20up%20being%20the%20case." target="_blank" rel="noopener">as a portfolio diversifier</a>. Gold has proven itself decade after decade, and exploration companies such as <a href="https://www.miningnewswire.com/clients/reunion-gold-corp/?symbol=rgd:ca" target="_blank" rel="noopener">Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF)</a> are unlikely to be fazed by these temporary bear conditions in the market for gold.</p> <p><strong>NOTE TO INVESTORS:</strong> The latest news and updates relating to Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF) are available in the company’s newsroom at <a href="https://ibn.fm/RGDFF" target="_blank" rel="noopener">https://ibn.fm/RGDFF</a></p> <p><strong>About MiningNewsWire </strong></p> <p>MiningNewsWire (MNW) is a specialized communications platform focused on developments and opportunities in the global resources sector. 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