Here’s Why Gold is King of the Commodities

Gold Is King of Commodities Sector

Bullion.Directory precious metals analysis 13 September, 2021
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Between higher inflation and shortages of basic materials expected for the foreseeable future, it’s not a difficult notion to entertain. And out of the various commodities that could come to greater prominence in the investment sphere, gold is once again emerging as a shoo-in for the top spot.

The analysis goes a step further in asserting gold has all that’s necessary to altogether replace a portfolio’s allocation to commodities because of the sheer number of benefits it brings. Last year was just one example of gold’s ability to outperform any commodity, with only silver coming out ahead. Yet while silver had a volatile year, gold’s peak performance was combined with the lowest volatility of any commodity. Volatility matters for two big, and very different reasons.

First, lower volatility eases the psychological impact of the swings we see up and down in the day-to-day value of our savings. Fewer big moves makes it easier for savers to stick to their financial plans even during times of market upheaval. Loss aversion (we tend to suffer more pain from losses than joy from equivalent gains) can drive individuals to make panicked decisions that can sabotage the painstaking financial plan.

Second, lower volatility reduces the likelihood of needing to sell assets at a time when prices are low. Overall, lower volatility in any portfolio, especially a long-term investment like a retirement savings plan, is a good thing.

Gold shows exceptional resilience in any number of economic situations. These can range from stock market sell-offs to systemic crises that other commodities are vulnerable to. And while it’s well-known that gold is a shield against inflation, being able to perform well during periods of low inflation is further testament to its overall robustness.

And while gold is robust, it’s also exceptionally liquid, especially when contrasted with other commodities. Many would argue that gold’s liquidity comes close to that of cash, whereas other commodities can be difficult to buy, store, manage and sell.

With all this in mind, gold might very well be the only commodity whose role as a store of value, and therefore its role in a portfolio, simply cannot be questioned in any economic circumstance.
 

Paper gold shuffling; $2,000 by year-end for gold is still viable

In its monthly paper gold funds report released on Tuesday, Kitco’s Neils Christensen reviewed institutional trends in gold ownership and assessed the impacts on gold’s price in the months ahead. While North American funds sold 32.2 tons of paper gold in August, European institutions purchased 9.6 tons.

This discrepancy is likely due to portfolio managers’ attitudes toward economic conditions are perceived in their regions. Spikes in the U.S. dollar and Treasury yields triggered selling of paper gold, as is so often the case, with a need for liquidity being another major factor.

At the same time, Europe is experiencing the highest rise in inflation in nearly a decade. Likewise, central banks in various regions are cautioning that the economic recovery could lag considerably. It’s a fairly different look from the U.S. expectations that the economy will quickly rebound.

A large part of gold’s headwinds have to do with the planned reduction of central banks’ balance sheets, especially that of the Federal Reserve. However, the recent consensus is that the Federal Reserve isn’t going to make any significant strides in this area over the next two years.

Overall, the report was bullish on gold’s prospects, as the metal continues to trade between a range of $1,790 and $1,830. Some of the main drivers that could set the path for gold to reach $2,000 before the end of the year include weak equities in emerging markets and the ever-growing specter of inflation.

This article was originally published here

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