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When Will Equity Investors Seek the Safety of Gold Bullion?

When Will Equity Investors Seek the Safety of Gold Bullion?

Gold tends to be the place where investors run to when they sense trouble. With anti-EU sentiment growing amongst politicians in Eurozone members such as Italy, as well as the uncertainty over trade links around Brexit, and a growing potential for Presidential impeachment in the USA, it is difficult to understand why there is still cynicism amongst the majority of investors towards buying gold bullion.

But for the moment, the price of gold bullion is holding relatively steady whilst not offering any real additional value above equities.

Peak gold and its effect on gold prices

There are also challenges for gold holding with recent developments such as the reaching of what appears to be the peak gold supply. Many older gold mines are effectively becoming empty and their replacements are yet to come fully on stream.  Many of these mines are also usually smaller than the ones they are replacing.

This upcoming decline in capacity has not yet been factored in to the prices charged.

That gold value has changed little over the past few months suggests that most investors are not overtly worried.with the turbulence that is being introduced in to the mainstream of the economy.

Industrial source demand decline may be masking investor demand rise

Maybe this suggests their could be a steadying of the demand from industrial sources in the period or that investment makers are not yet spooked enough by the potential equity losses on the downside to want to bother with increasing their level of security.

A sudden systemic shock would lead to a sharp price rise as investors scramble for certainty, which would make the losses they were suffering on the downside of their panic selling of equity investments appear even more steep. Whilst increases in the gold price as other investors run for safety will offset some of this, the reality is that investors will have less funding to buy gold if they have waited until the crash in equity prices to take place.

Regardless of the systemic shocks ahead for the equity market, gold remains a good long term store of value and relatively resistant to inflation. For a UK investor who is already seeing rising labour costs, usually a precursor of higher inflation that is likely to devalue the buying power of the pound, this reason alone could be enough to make buying gold bars worthwhile.