2021 was not a good year for gold investors. The rate of gold remained depressed for three consecutive months. Slight improvements were visible from April. But the recent inflation bet is bringing good news to gold investors all around the world. The current recovery of some countries from covid, which leads to uneven economic growth, is also a reason behind this gold bullion.
So, there is this news about inflation around the corner, and gold hits its highest monthly gain since July. How? Let us look at how this inflation bet affects the gold investment sector.
What determines the value of gold?
Studies conducted by the Gold Council of Malaysia understand that two factors affect the gold’s value.
- The first one is per capita income. As the per capita income of the population increase by 1%, the demand for gold will also increase by 1%.
- And the second one is the price of gold; When the price of gold rises by 1%, the demand for gold decreased by 0.5%.
Inflation Hedge
But what is the connection between gold bullion to inflation?
Inflation is a pointer to economic growth and development. Inflation leads to an expanded money supply. As the money supply expands, the value of existing currency decreases, leading to the rise of the price of commodities. That is a cyclic process and keeps ongoing. But investors can use this situation for their benefit if they invest wisely.
The usual trade and stock exchange trend are that investors tend to keep their asset as gold when inflation rises. The reason behind it is that when inflation increases, the value of currency decrease. In such a situation, the safest investment would be gold. And if the inflation remains high for an extended period, gold can be used as the tool of hedge against inflationary conditions. That leads to a hike in the gold price and huge gain for investors.
Higher inflation will also lead to lower actual interest rates, almost to a negative level. That is a positive sign for gold investors.
Covid 19, inflation and gold investment
The global market came to a standstill when the deadly virus hit the world. As other investments face a downfall during this period, primarily due to inflation, the yellow metal became the haven for investors. And the most promising aspect of this trend is that even when some countries recovered from the virus and restored their market, the value of gold keeps rising. People have started acknowledging gold as the safest investment in this changing economic situation.
If you plan to start an investment, gold is the right option, and now is the best time. Consult RPS Brokers, the leading gold brokers of London, to know more about gold investments and the risk factors involved.
Be prepared!
News reported that Federal Reserve officials are still concerned about recent price pressure. As the economy reopens after a pent-up demand, it is normal for an economy to face inflation. That could be a glitch in the supply-demand chain, and inflation might get resolved soon.
So, understand the market before investing in gold in this dynamic market. Always take professional advice beforehand. RPS is one of the trusted gold brokers in London. Contact RPS gold brokers to become a part of the gold market.
