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Gold Sells Out In Economic Unrest
This week, Costco experienced an unprecedented sales frenzy over gold bars. Given the current economic turbulence and inflating market, it’s predictable investors are seeking sanctuary in the tried-and-true assets like gold. Speculations are rife about whether the positive trend will push the gold price beyond the $2,050 mark last seen in the early days of May.
Gold’s Yearly Performance in Perspective
Over the last year, the value of gold has witnessed a solid rise of 12%. The commendable boost is attributed in part to the Federal Reserve's strategic retention of high-interest rates to counteract inflation. This benefits assets with scarcity, such as gold. However, a comparison of returns is vital considering that gold's returns over the same period have been on par with those of the S&P 500, which appreciated by 15.4% and the WTI oil's 12% growth. Nonetheless, when compared to Bitcoin's (BTC) massive return of 39.5%, their increases seem minimal. Despite this, given its low volatility at 12 %, gold remains a coveted choice for investors wishing to manage their risk.
Why Gold Is A Favorable Investment Option
Gold's primary highlight is its consistency, maintaining its value during unstable times. Owning the title of the world's largest exchangeable asset and carrying a valuation of over $12 trillion, gold emerges as the prime benefactor of capital influx whenever investors withdraw from mainstream markets like stocks and real estate. Case in point, during the COVID-19 pandemic, the gold value merely faltered by 2.2% in the preceding month to March 24, 2020.
Increasing Central Banks' Interest in Gold
As reported by the World Gold Council, central banks worldwide have been acquiring more gold for the second month in a row and have added a significant 55 tons into their reserves. Notably, China, Poland, and Turkey executed major purchases. As per Bloomberg, Russia also plans to amplify its gold deposits by a staggering $433 million to insulate its economy from commodity market volatility, particularly affecting its oil and gas sectors.
Predictions and Production Facts About Gold
Visual Capitalist's production data reveals that in 2022, around 3,100 tons of gold was produced, with Russia and China contributing 650 tons. If the pricing pattern of gold continues its ascending trend, World Gold Council forecasts suggest that the total output could touch a record 3,300 tons in 2023.
Evaluating Gold’s Investment Potential
The stock-to-flow ratio remains an essential measure to understand the likely returns on gold investment. This ratio calculates a commodity’s production against the total available quantity. Over the past 12 years, gold's stock-to-flow ratio stability has held at 67.
Bitcoin's Comparative Performance
The Bitcoin’s stock-to-flow ratio, exhibiting a lower inflation rate, currently sits at 59, considering Bitcoin's three pre-scheduled halvings, which curtailed its issuance relative to gold. This indicates that Bitcoin can outshine gold if the U.S. government reaches its debt ceiling, leading to a potential shutdown. Bitcoin's flexibility can cause price leaps even with smaller capital inflow. Central banks may also consider liquidating their gold reserves to meet expenses, enhancing Bitcoin's attractiveness. Although the possibility of new gold discoveries remains on the table, Bitcoin's impressive gains and lower inflation rates set robust competition for those desiring alternative stores of value. However, the existing economic instability and the Federal Reserve’s financial measures are likely to favor both assets.
