17.03.202112:28 Forex Analysis & Reviews: Are investors ready to give up gold?

The price of gold has already lost more than 11% this year. Experts identify several factors that caused such concerning negative dynamics – the growth of US Treasury bond yields, stock market rallies and bitcoin volatility. In this regard, traditional assets began to raise profitability, while gold, which has no interest income and dividends, noticeably declined.

However, different scenarios today indicate that inflation will temporarily rise, since additional liquidity is infused into the markets. Now, how will the fate of the main precious metal change considering such prospects?

Analysts predict that as a result of increased inflation, the relatively fixed returns on classic assets will not matter, as currencies will decline. This is where investors will find the lack of yield in gold useful, which is repulsive to them today, since this asset is the protection of the investment portfolio from the collapse of currency and bond prices. However, a serious competitor to the main precious metal here may also be Bitcoin, which many rightly call a replacement for gold and the main protective asset of the 21st century.

Unfortunately, not everything with virtual currencies is simple as it looks like. The mere fact that the authorities don't regulate the cryptocurrency market forces many investors to stop the risk in investing in digital assets. Moreover, India created a bill to completely ban cryptocurrencies before China banned mining and trading. In view of the current situation and future inflation, investors are forced to rely on gold only. However, it is still unclear what awaits the main precious metal in the short term.

According to analysts, there are three possible scenarios for the development of events. It is quite likely that the rate of inflation will slightly increase and the Central Banks will maintain the monetary policy. If so, interest rates will inevitably fall, while bond yields and the gold exchange rate will slowly move up. In the event that inflation sharply grows, interest rates as well as gold's price will also rise. At the same time, it is also possible that Central banks will be forced to buy back all assets, while the national debt will not be able to refinance. In this case, the bond market will be on the verge of collapse. If inflation turns out to be uncontrolled, the gold exchange rate will break the 2020 record several times.

Therefore, investors will return to gold as soon as investors determine that inflation rate has overtaken the economy. In this case, traditional assets' profitability will disappear for some time.