The last twelve months in the investment industry have seen interesting dynamics develop in the global economy as China shifts from US fixed yield assets to gold.
Generally, when there is geopolitical and economic uncertainty, gold is viewed as a safe-haven asset and a hedge against inflation.
China has bought gold for 12 consecutive months, and its reserves have hit a record high.
This is a complete reverse of historical investing. Will the trend continue, and how does it impact investing over the next few years?
Historically, government bonds are bought when yields are high, and interest rates are increasing. When yields decline, gold is the go-to safe haven. China used to buy US treasury bills and US government bonds when interest rates were high, but now they are going against the norm and buying gold, even though they can get a higher yield in Dollar, Euro or Sterling in fixed interest. It offers no yield or interest apart from increasing in value in the future.
Despite this, there is a rise in gold prices. Why? There has been an ongoing battle in tech world nations and economically between China and the US. China’s move away from US reliance has far-reaching effects for investors. Gold is appreciating in value, and as interest rates decrease over the next few years, as is expected, more governments and investors will buy gold, pushing the price up even further. By stockpiling gold now, China is set to build its wealth exponentially over the next few years as it moves away from US reliance.
Diversifying into gold could be the right move for investors looking to get into the gold price surge predicted in the near future.