Investing in gold

Investment in gold has traditionally been viewed as a safe haven in times of trouble. This week, we saw investors around the world placing their bets on gold with the price reaching a record high of $2141.59 an ounce.

The price of gold has risen by $300 an ounce since last October, the start of the Israel-Hamas conflict. What could this be a reflection of? Why are investors moving their cash into a safe haven? There could be various reasons and considerations.

Since gold is considered a safe haven to move into because it is seen as a store of value, the implication is that there is a great deal of uncertainty. The first consideration to make is whether the world is in a state of war. We have the conflict in the Middle East between Israel and Hamas. We have the war in Ukraine following the Russian invasion two years ago. And there are a number of other conflicts going on around the globe.

We also have an increase in terrorist activity, primarily that of the rebel group Houthi’s, which is attacking merchant shipping, rendering the Red Sea unsafe.

We may not have a full-scale war of the type we had between 1939 and 1945. However, there are so many pockets of conflict that the world does look like it is at war and attempts at peace are not being successful. If the most we can hope for in the Israel-Hamas conflict is a ceasefire, then hopes for peace are really slim. All this conflict definitely gives investors the jitters to the extent that they may prefer to just hold on to cash or, at most, move their investment in a safe asset such as gold.

With nearly 80 years of peace in Europe, are there people who feel they can benefit from having a war?

We may not have a full-scale war of the type we had between 1939 and 1945. However, there are so many pockets of conflict that the world does look like it is at war

The second consideration is the uncertainty being created by a number of elections due this year. The media speak mainly of the US presidential election as that is certainly the most significant one. This is then followed by the elections for the European Parliament. These elections are important as they will shape the institutions of the EU and their policies over the coming five years. Elections in other countries then fall into line.

We need to appreciate that the world in 12 months’ time may be very different from the one we know today as a result of the outcomes of these elections. This would explain the flight into gold by investors.

A third consideration is interest rates. They are now at a level which we have not seen for decades. Will there be a correction downwards in the coming months? Will the US Federal Reserve and the European Central Bank reduce interest rates given the weakened economic growth, especially in China and the eurozone? And would this expectation push investors into holding more gold?

In conclusion, I would like to express a feeling I have. Are governments, national and international institutions, big corporations, banks, puppets dancing to the tune of a small group of people, whose interest is to create uncertainty?