Gold continues to glitter for investors, thanks to the Fed’s policy change and US-China geopolitical tensions

The possibility that the recent change in Fed policy could mean higher inflation in the future could underpin the value of gold in the present

The run-up to the US presidential election and China-US geopolitical tensions are also bolstering gold’s safe-haven status

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A staff member waits to welcome guests in the lobby of the newly inaugurated Dolce Hanoi Golden Lake hotel, the world's first gold-plated hotel, in Hanoi on July 2. From an investor perspective, gold has been a safe haven for thousands of years. Photo: AFP

Published: 8:45pm, 8 Sep 2020Updated: 10:48pm, 8 Sep 2020

Gold continues to look attractive. On the monetary policy side, the US Federal Reserve has made a profound change to its long-term strategy and will target average inflation. Meanwhile, investors aren’t oblivious to rising geopolitical tensions that should lend support to gold, a safe-haven asset for thousands of years.

Admittedly, given that investors cannot derive a yield from holding gold in the way that government bonds provide returns, a compelling argument has to exist before the general investor would choose to forgo interest or dividend income from other assets in favour of increasing the percentage of gold in a portfolio.

A good starting point for such an argument is the possibility of a future uptick in inflation that would erode the real value of other assets if the increase in value of those assets failed to keep pace with the general rise in prices. Historically, gold has done well in times of inflation as evidenced, for example, in the 1970s.

As it turned out, the perceived success of major central banks in curbing runaway general price increases in the decades following the 1970s reduced investor anxieties about inflation.

Additionally, the emergence of China as a major economic player on the global scene, with Western consumers clamouring for its well-made and competitively priced products, had a broadly disinflationary impact that, arguably, eroded the case for gold as an inflation hedge.

But times change and so does market psychology. The emergence of China as the pre-eminent supplier of inexpensive goods for Western consumers was only ever going to be a stepping stone in China’s economic development. China has got richer and its increasing affluence has provided its consumers with a great deal of purchasing clout on the world stage.