Safe haven assets

Gold, the antidote to global debt and US power

Record share price despite strong dollar and high rates. Boosted by government purchases and bond fears

by Marzia Redaelli

2 December 2024

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2' min read

Key points

The recent up-and-down
The Fed pivot
Uncertainty and reserve effect

2' min read

Gold is the metal that most of all demonstrates its ability to withstand economic and technological changes. Two months ago, in fact, the safe haven asset par excellence touched another historic record, over $2,790, between one stock market push and another, in the midst of a very risk-friendly period.

The recent ups and downs

The price has remained above $2,700 for the past few sessions, but investors' hunger for the precious commodity does not seem to have subsided, despite the price's recent descent from its highs. Early last week, Donald Trump's nomination of Scott Bennet, a Treasury secretary considered moderate, brought euphoria back to the stock markets and penalised gold. Then came the news of the truce between Israel and Lebanon in the Middle East, which lifted some anxiety from the markets.

However, the new US President was quick to dampen enthusiasm, reiterating his intention to increase tariffs as soon as he took office, and investors found shelter in gold.

But Trump did not fail to shock the markets and reiterated that as soon as he takes office in the White House he will increase tariffs on the products of trading partners arriving in the US. The announcement immediately increased uncertainty, all the sap for gold. In addition, the US central bank put its own spin on making investors nervous, because the minutes of the last meeting do not give any certainty about cutting interest rates, because the economy is toned down and inflation not tamed.

The Fed's pivot

"Accommodative signals from the Federal Reserve," explains Ricardo Evangelista, senior analyst at ActivTrades, "could support gold prices, while indications of a possible pause in rate cuts next month could create further hurdles for bullion.

This year, as professional investors point out - interest rates have fallen much less than expected at the beginning of the year, a real disappointment for gold investors. Inflation, moreover, has receded, diminishing one of the yellow metal's advantages, namely its ability to maintain appeal when, on the other hand, bonds are losing it because coupon yields net of inflation are shrinking in real terms, i.e. in terms of purchasing power.

Uncertainty and reserve effect

Bert Flossbach, co-founder of Flossbach von Storch, believes that demand for gold remains strong because many countries and their central banks do not want to be hostage to US government bonds and, therefore, are buying the yellow metal to replenish their reserves. Another reason, is the expansion of US government debt: 'The high and rapidly growing level of government debt in the US and many other countries is likely to be an important reason for large investors to concentrate more of their gold reserves,' Flossbach adds. Although the risk of sovereign default is only theoretical in most countries, an unsustainable debt policy undermines the long-term value of the currencies in which the debt is serviced. In fact, there seems to be a long-term correlation between sovereign debt trends and the price of gold, as a comparison of the last 20 years shows'.

Marzia Redaelliredattore
Luogo: Milano
Lingue parlate: italiano, inglese, francese
Argomenti: Financial markets, asset management, macroeconomics
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