The surprising rise of gold

By Anne-Laure Frischlander-Jacobson An unprecedented context for gold 📈 For five years, the price of gold has seen a spectacular rise, exceeding 2,700 USD per ounce.

An unprecedented context for gold 📈

For the past five years, the price of gold has risen dramatically, exceeding $2,700 an ounce. This surge is striking because it occurs within an economic context of disinflation and renewed interest in riskier assets such as stocks. Historically, this type of period tends to cause the price of gold to fall.

However, this increase is justified by the massive purchase policy of central banks, mainly in emerging countries, and by sustained investor demand, fueled by a tense geopolitical climate.

How the gold market works ⚖️

Gold is a raw material, but also a financial asset. Its price depends on the balance between supply and demand:

• The supply comes 75% from mining and 25% from recycling.

• Demand is distributed as follows: 49% for jewelry, 23% for central banks and 21% for investors.

China and India alone account for more than 50% of global demand.

Bullish and bearish forces at play 🔄

Bullish factors 🟢

• Geopolitical tensions are strengthening the appeal of gold as a safe haven asset.

• It is still perceived as a good safeguard against long-term inflation.

• Massive purchases by central banks, particularly emerging market banks, are supporting demand.

Bearish factors 🔴

• Rising interest rates increase the cost of holding gold, which does not generate income.

• A strong dollar makes gold more expensive in other currencies, reducing demand.

• During periods of economic optimism, investors prefer high-yield assets.

Emerging market central banks, drivers of demand 🌍

Since 2021, central banks in several emerging countries – Russia, China, India – have massively increased their gold purchases. The objective: to diversify their reserves and protect themselves against the risk associated with the US dollar, especially in a context of economic sanctions and growing geopolitical tensions.

These purchases have helped to double demand in two years , an unprecedented phenomenon that is permanently changing the dynamics of the gold market.

Gold faces a new strategic role 🔐

Despite a seemingly unfavorable economic environment, gold retains its legitimacy as a diversification asset. Its negative correlation with bonds makes it an attractive tool in a balanced portfolio allocation, even if its upside potential currently appears limited .

At Evvest , we recommend maintaining a small weighting in gold , more for its stabilizing role than for the prospect of significant gains.

Bitcoin and the US elections: a breath of optimism 🪙

As the 2024 presidential election approaches, Bitcoin is experiencing a significant rise, flirting with $70,000. This increase is linked to the anticipation of more favorable regulations should Donald Trump win, as he has promised to remove Gary Gensler, the SEC chairman.

A dynamic driven by crypto ETFs 📊

Bitcoin ETFs attracted over $2.4 billion in a single week, reflecting strong investor confidence. On the Democratic side, Kamala Harris is taking a more progressive approach to cryptocurrencies, contrasting with the more cautious stance of the Biden administration.

Cryptocurrencies are therefore becoming a central issue in the US election campaign , and the outcome of the vote could profoundly reshape the regulatory landscape and open up new prospects for digital assets.

Conclusion: Gold, crypto, geopolitics – an allocation to be reinvented 🧭

While gold is surprisingly resilient and Bitcoin is gaining momentum ahead of the US elections, investors need to rethink their diversification strategies. In an uncertain world, alternative assets like gold or cryptocurrencies can play a role, provided they are judiciously integrated into a comprehensive portfolio management approach.

At Evvest , we continue to closely monitor these dynamics to offer you the most relevant allocations in a constantly evolving environment.