After a disappointing 2021, which saw gold close down 3.6%, 2022 has heralded the yellow metal’s resurgence.
“The price of gold is rocketing at the moment predominantly because of the geopolitical circumstances. With the increased economic instability caused by the war in Ukraine and Russia, investors are feeling nervous and pulling out of stocks and equities where the returns are dwindling and instead, putting their money into the traditional safe haven of gold,” said MarketOrders co-founder and COO Sukhi Jutla to Kitco News.
Many analysts note that geopolitical triggers are often only temporary drivers of the price of gold. However, this situation might be unique. TD Securities’ head of global strategy Bart Melek told Kitco News, "Typically, the risk premium to gold following geopolitical event peters out quickly. But in this situation, even if things calm down, you will still have an inflation problem. And it doesn’t look like it will calm down any time soon.”
Gold was down a little on Friday off of news that Putin was upbeat about talks with Ukraine and due to the Senate passing the $1.5 trillion federal funding bill, ending the risk of government shutdown. Though Putin’s comment took the market by surprise, there are many who wonder how the Russian leader can back off his current aggression and still save face. Russia has also said that it will redeploy thousands of fighters from the Middle East to Ukraine.
Amid all of this uncertainty, gold has regained its luster. “The world is coming back to the idea that gold – physical, hold it in your hand gold – is the money you want in a crisis. More than a decade of peace and bull stock markets helped us forget that truth. But the Russian invasion of Ukraine brought back the reality of life in crisis in real-time,” said Mangrove Investor founder and CEO Matt Badiali, who continued, “In peace and prosperity, the need for emergency cash is distant. We can put a value on things like digital pictures. But, when you are starving, cut off from electricity and the internet, those things don’t matter. If I can’t access the internet, I can’t Venmo you the price of food. But I can trade you a necklace or a ring for a loaf of bread.”
Investors can get exposure to physical gold through the Sprott Physical Gold Trust PHYS, and to gold miners — which traditionally perform exceptionally well in times of stagflation — through the Sprott Gold Miners ETF (SGDM ) and the Sprott Junior Gold Miners ETF (SGDJ ).
For more news, information, and strategy, visit the Gold & Silver Investing Channel.