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Macroscope | With no gold rush, are investors really worried about inflation and a growth slowdown?
- Despite warnings about rising inflation amid supply-chain disruptions and tight labour markets, the gold price has defied expectations and remained steady
- As inflation pressures ease and central banks shift away from emergency policy settings, investors will look elsewhere for income and diversification
Reading Time:3 minutes
Why you can trust SCMP
Gold is one of the world’s oldest financial assets and often seen as a safe harbour when capital markets get choppy. It is considered a hedge against rising inflation and a store of value in the face of economic calamity.
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In 2020, gold prices soared to an all-time high as the world was turned upside down by the Covid-19 pandemic and investors sought protection from falling equity markets.
Despite the increasing voices warning about the threat of inflation from disrupted supply chains and tightening labour markets, as well as the risks that these pose to the outlook for growth, the gold price has actually been relatively stable since the middle of the year.
If there were genuine risks of another collapse in global economic activity and surging inflation, shouldn’t the gold price be much higher? Is this a signal that investors aren’t really concerned about growth and inflation?
Gold has historically exhibited a strong negative correlation to equities, particularly when inflation is high, as was evident in the 1970s. Gold has provided positive returns during shocks to the growth outlook and when inflation has soared.
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Malaysia’s gold industry cashes in on bullion rush as stock markets tumble under pandemic
Malaysia’s gold industry cashes in on bullion rush as stock markets tumble under pandemic
But it is at the extremes of growth and inflation when gold does best. In periods of moderate growth and moderate inflation, returns are less appealing.
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