Alternative Investments Update – Gold Continues To Shine

gold 2020
The World Gold Council has released its ‘Gold Outlook for 2020’ which makes interesting reading. As many of our clients will be aware, gold had an extremely good 2019 and the outlook for this asset is prompting some commentators to suggest it could be the ‘trade of the decade’. In today’s world of ultra-low interest rates and negative yielding government bonds, it certainly merits inclusion as a core holding. Here are the key takeaways from the WGC Report:
  • 18.4% year-on-year rise in Dollar terms last year
  • Inflows into global gold-backed ETFs pushed total holdings to a record high
  • Central Banks were net buyers for a 10th consecutive year
Geo-political anxieties supported gold demand in 2019 as investors turned to gold as a traditional safe-haven but the bigger moves were made by institutional investors pricing-in Central Banks interest rate cuts.

Longer-term reasons to hold gold
As the yields from Government bonds resume their descent to zero their appeal as a safe haven diminishes. There is now over $13 trillion of negative-yielding Government debt, which means that you are guaranteed to make a loss if you buy them and hold to maturity.

But the real worry here is not the short-term maturities, where Governments can redeem their maturing debt by simply issuing more debt, it’s the long-term. Taking interest rates and bond yields to zero or even negative and keeping them there will require continuous and increasing asset-buying by the Central Banks. This is coming at a time when many developed-world Governments are preparing to take the brakes off fiscal ‘austerity’ by increasing their spending to promote growth and prevent deflation. In all, this is going to have significant implications for the ever-increasing amount of global debt and therefore the sustainability of this debt. The bigger problem results when there is an erosion of confidence. In these circumstances, Government debt will look a very precarious place to hold your money. Gold could well become the ‘trade of the decade’ as investors turn to an asset that is nobody’s liability and has a history of long-term wealth preservation.

If you would like to read the World Gold Council Report 2019, please click on the following link: https://www.gold.org/goldhub/research/outlook-2020

If you would like to discuss gold, how you can buy it and where you should hold it, please call me on 01494 683100 or e-mail steve.wilson@2hwealthcare.co.uk