The Gilded Age could be ending as yellow metal's losing its safe haven appeal

• When fears of recession looms large, investors pull out money from riskier bets to invest in gold
• This time around however money is flowing out of gold to US treasuries due to strengthening dollar index.
• Gold might be losing sheen as an inflation-hedge, Ravindra Rao, VP- head of commodity research at Kotak Securities who believes it to remain below $1800/oz in the near term.
• Gold demand is holding up well in spite of investments skewed towards the dollars, Chirag Mehta, CIO of Quantum AMC.
  

When inflation goes up, investors move to gold. When fears of recession looms large, investors pull out money to invest in gold — the same asset that commodity traders and even middle class grannies shift to during bad times, ‘cause it’s ‘safe’.

This almost-recession and high inflation-season has played out differently — and gold has hit a nine-month low to around $1730/oz, testing the lows it hit in September 2021, in the thick of the pandemic. While people are pulling out money from equities, they are going to an option that’s safeer yet holds better promise – US treasury bonds.

“The dollar index is at a multi-year high. The yields of US treasury bonds have gone up from around 1.5% to almost over 3%, and TIPS or treasury inflation protected securities too are multi year highs,” Chirag Mehta, CIO of Quantum AMC told Business Insider India – explaining where ‘gold money’ is flowing to.

Money is flowing out of exchange traded funds or ETFs, and that indicates lower investor interest.

It looks like gold is losing its appeal as an inflation hedge, opines Ravindra Rao, VP- head of commodity research at Kotak Securities. In the last few months, central banks across the world have tightened fists to control inflation — which is now cooling down thanks to fear of recession.

“Ideally these factors should support it but now gold money is flowing into dollars, and steering investors away from it. Gold prices could remain below $1800/oz in the near future. Since it’s already falling, traders are waiting for it to fall more to invest,” explained Rao.

According to him, little would change in the prices of gold before US inflation data comes in later week.

More than just about dollars

All the gold’s fall cannot be attributed to dollars and its investors only. Some of the effect could be because gold is going where most other commodities are — like crude oil. It has been falling on fears of increasing Covid-19 cases in China that can dent demand internationally.

The same fears are weighing on gold as well.

It’s not just international demand but domestic demand too reduced a little as the wedding season has come to an end. But not all experts think so.

“I think gold demand is holding up well relative to other assets even though investments are now skewed towards the dollar,” said Mehta.

According to Mehta, there are many more riskier assets than gold – like silver which is considered the poor cousin of gold as an investment class — but its fall has been higher.

“Those who invested in silver are disappointed. Those who invested in Bitcoin are disappointed. I think all things considered, gold’s fall has been much less,” explains Mehta.

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