Gold Performance during Volatile and Uncertain Times
The recent spike in Treasury yields has had a negative impact on the price of gold. Gold is a non-yielding asset, so when yields on other assets, such as bonds, rise, gold becomes less attractive to investors. Additionally, rising yields tend to strengthen the US dollar, which makes gold more expensive for buyers outside of the United States.
Historical Performance of Gold Prices During Rises in Yield
Historically, gold prices have tended to perform poorly during periods of rising yields. For example, during the 1990s, when Treasury yields rose sharply, gold prices fell by more than 50%. However, it is important to note that there have been exceptions to this rule. For example, during the 2008 financial crisis, both gold prices and Treasury yields rose.
In the short term, the recent spike in Treasury yields has put some downward pressure on gold prices. However, it is important to note that the relationship between gold and bond yields is complex and not always straightforward.
Impact of Geopolitical Turmoil on Gold Prices
Gold is often seen as a safe-haven asset, so during times of geopolitical turmoil, gold prices tend to rise. This is because investors view gold as a store of value that can protect their wealth during uncertain times.
The ongoing Ukraine war and Israel-Hamas war have both contributed to the recent rise in gold prices. However, it is important to note that gold prices have been volatile in recent months, and it is unclear how they will perform in the long term.
Additional Context
In addition to the factors mentioned above, there are a few other things to keep in mind when considering the impact of Treasury yields on gold prices:
- The strength of the US economy: When the US economy is strong, demand for Treasury bonds tends to be high, which can push yields lower. This can have a positive impact on gold prices, as it makes gold more attractive to investors.
- Inflation expectations: Gold is often seen as a hedge against inflation. If investors expect inflation to rise, they may buy gold as a way to protect their wealth. This can also have a positive impact on gold prices.
- Central bank policy: Central banks around the world play a major role in influencing Treasury yields. When central banks buy bonds, yields tend to fall. Conversely, when central banks sell bonds, yields tend to rise. Central bank policy can therefore have a significant impact on gold prices.
Impact during periods of stagflation
Gold has historically performed well during stagflationary periods. Stagflation is a period of high inflation and slow economic growth. During these times, investors often turn to gold as a safe-haven asset and a hedge against inflation.
For example, during the stagflationary 1970s, the price of gold rose from around $100 per ounce to over $800 per ounce. This was a gain of over 700% in less than a decade.
Gold has also performed well in recent years during periods of high inflation. For example, in 2021, the inflation rate in the United States reached a 40-year high. During this time, the price of gold rose by over 25%.
There are a few reasons why gold tends to perform well during stagflationary periods. First, gold is a real asset, meaning that its value is not tied to any currency or government. This makes it attractive to investors during times of economic uncertainty.
Second, gold is a hedge against inflation. When the value of currency decreases, the value of gold tends to increase. This is because gold is seen as a store of value.
Third, gold is a popular investment during times of geopolitical turmoil. Investors often turn to gold as a safe-haven asset when they are worried about war, terrorism, or other political risks. During stagflation, wealth inequality increases between rich and poor leading to heightened risks for civil wars and political tensions.
The best gold stocks and ETFs to buy in India depend on your investment goals and risk tolerance. However, some of the most popular and well-regarded options include:
Gold Stocks in India
- Titan Company Ltd. (TITAN)
- Rajesh Exports Ltd. (RAJESHEXPO)
- Kalyan Jewellers India Ltd. (KALYANJWL)
Gold ETFs
- HDFC Gold ETF (HDFCGOLD)
- SBI Gold ETF (SBIGOLD)
- IDBI Gold ETF (IDBIGOLD)
- Axis Gold ETF (AXISGOLD)
- Kotak Gold ETF (KOTAKGOLD)
- Titan Company Ltd. Titan is a leading Indian jewelry retailer and manufacturer. The company also has a significant exposure to gold, as it uses the metal to make its jewelry.
- Rajesh Exports Ltd. Rajesh Exports is one of the world’s largest gold exporters. The company also has a significant presence in the Indian jewelry market.
- Kalyan Jewellers India Ltd. Kalyan Jewellers is another leading Indian jewelry retailer and manufacturer. The company has a strong presence in South India.
Gold ETFs
- HDFC Gold ETF
- SBI Gold ETF
- IDBI Gold ETF
- Axis Gold ETF
- Kotak Gold ETF
These ETFs are all backed by physical gold held in secure vaults. They offer investors a convenient and low-cost way to invest in gold.
Which option is right for you?
If you are looking for a long-term investment in gold, then a gold ETF may be a good option for you. ETFs are relatively low-risk and offer you exposure to the gold price without having to buy and store physical gold yourself.
If you are looking for a more speculative investment, then a gold stock may be a better option for you. Gold stocks can be more volatile than ETFs, but they also have the potential to generate higher returns.