Gold has not been a refuge due to market volatility

Gold has not been a refuge due to market volatility

Although in recent days it has registered a slight rise, the price of gold is at its lowest level of the year and its role as a haven during the current global market and geopolitical volatility has given way against the dollar, which has clearly strengthened.

(According to the Comptroller, 85% of the gold that is exported is from illegal mining).

Traditionally gold has served as a refuge for investors in the face of major events such as wars, economic and financial collapses or sharp falls in world stock markets, and that role became evident in 2020, the year in which the world began to experience the pandemic, as its price rose by nearly 25%.

However, in 2021 the precious metal began to lose some of its shine, with its price falling by 3.5%. And this year the decrease in its price reaches 3%.

Analysts consider that precisely the depression that its price is experiencing, after having reached maximums of US$2,050 an ounce, when Russia invaded Ukraine, could be a reason to rise again, at a time when world inflation does not yield, interest rates are on the rise and the possibility of a world recession, led by the United States, is also being considered in the coming months.

Of course, the regular moment that the price of the gold metal is experiencing could also be influenced by the decision of the European Union to ban imports of that product after an action determined by the G7 to somehow cut off an important source of income.

According to information from Refinitiv, in recent days the price of gold managed to break the floor of US$1,700, which has alerted investors to the possibilities that this poses in terms of protection or speculation with the gold. purpose of making profits in a short time.

Nevertheless, Not everyone sees a moment of depression in the price of this metal and instead advises looking more in the long term.

Camilo Pérez, manager of Economic Research at Banco de Bogotá, says that if it is reviewed over a horizon of decades, the price of the yellow metal is at its highest and it is indeed a refuge from eventualities, “but we must bear in mind that as the price of gold is in dollars and to the extent that the currency is higher, the prices of commodities (raw materials) tend to lose level”.

For his part, José Ignacio López, director of Economic Research at Corficolombiana, comments that The gold market has undergone some transformations and has lost some of its prominence.

He mentions that one of the factors is that the central banks are not buying the precious metal and instead there is some disaccumulation, such as the action carried out by the Banco de la República “and at this juncture clearly the refuge has been the dollar, since there are liquidity with the currency, little protection has been generated by gold, almost none have been generated by the cryptocurrencies that have disappointed as a haven asset, if they ever generated that promise, and what we have seen is a retail gain in gold.

López assures that as liquidity has been withdrawn, leverage has forced many of those retailers to even sell gold positions “and what we have been seeing is a loss of that correlation in which many more were looking for gold as shelter”.

For his part, Edgar Jiménez, from the Financial Laboratory of the Jorge Tadeo Lozano University, considers that similar to the inverse correlations that when the price of the commodity in dollar terms falls, the price of the currency rises, as usually happens with oil, The same thing happens with gold, although sometimes that correlation is lost and then recovered.

Furthermore, he agrees that in a difficult economic or political situation one of the hedges is gold and to acquire it you have to buy dollars, which would make them go up and also the commodity, but this is not currently seen.

Another factor that is taken into consideration is people and investors may not be interested in covering themselves in gold because they see that the economic situation does not have such a level of concern to go to protect themselves.

In addition, it adds that during the recent world volatility with the price of the dollar in the case of Colombia and some emerging countries, there were additional speculative attacks against their currencies taking advantage of political factors.
Given the price cuts that have been seen in the precious metal in recent months, several consider that at this time it is a good investment option, albeit conservatively, in small positions.

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