Since the beginning of 2020, gold has become the most reliable financial asset in the world in terms of saving money. This was announced on Monday, May 18, experts of the World Gold Council (WGC). According to experts, amid the coronavirus pandemic and uncertainty in the financial markets, investments in precious metals turned out to be more attractive for global investors than buying US government bonds (treasury bonds).
“This year, gold shows itself to be one of the best defensive assets. Between January 1 and April 20, 2020 gold (in terms of profitability. - RT ) was ahead of US treasury bonds and bills, as well as US government and corporate debt denominated in dollars, ”the organization’s study said.
Since January, gold on the world market has risen in price by almost 16% and is currently trading above $ 1,700 per troy ounce. At the same time, in April, quotes briefly reached the level of $ 1785. The last time a similar price level could be observed back in the fall of 2012. This is evidenced by data from the Comex Commodity Exchange.
As WGC analysts calculated, in the first quarter of 2020, global investment demand for gold increased immediately by 80% compared to the same period in 2019.
“Investors bought gold to protect their own funds from inflationary risks associated with the fact that in a pandemic, the financial authorities of many countries around the world are actively pumping money into their economies. At the same time, the uncertain prospects of many global companies have shaken the interest of investors in the stock market, which also played in favor of gold, ”EXANTE managing partner Alexei Kiriyenko told RT.
It is noteworthy that, with increasing purchases of gold, global investors began to massively sell government bonds of the United States. According to the latest data from the US Treasury, in March, foreigners' investments in treasuries fell immediately by $ 256 billion. As follows from the materials of the department, the collapse of investments turned out to be the largest over the past 20 years.
In addition, in the first month of spring, world central banks got rid of US government securities totaling $ 147 billion. According to experts, the sale has become the largest ever recorded. The largest volumes of treasuries were sold: Saudi Arabia ($ 25.3 billion), Brazil ($ 21.5 billion), India ($ 21 billion), Thailand ($ 9.5 billion), China ($ 10.7 billion) and the UK ($ 7.9 billion).
Recall that the Treasury of the US Treasury Department is a debt obligation guaranteed by the government. States buy securities and receive stable income on them. In other words, holders of government bonds lend their money to the American economy.
According to the US Treasury, today in the total debt of the United States ($ 25.3 trillion) about 27% falls on treasury bonds.
Meanwhile, recently, it has become less and less profitable for players in the global financial market to keep money in the US public debt. According to the US Treasury, over the past year, the yield on US government securities with a ten-year maturity has fallen from 2.4 to 0.7% per annum.
The yield of debt securities directly depends on the interest rate set in the country. Since the beginning of 2020, the US Federal Reserve System (an analogue of the Central Bank) has reduced the rate from 1.5-1.7% to 0-0.25% per annum. The regulator pursues such a policy to stimulate the economy during a pandemic and the threat of recession. At the same time, the actions of the Fed make investments in treasury less profitable.
“Buying or holding treasuries has become financially unprofitable. Due to the Fed’s rate cut to almost zero, US government securities have lost all attractiveness to other central banks. Although in the midst of the pandemic, many funds and large private investors panicked and began to buy exactly American securities even on extremely unfavorable conditions, the leadership of the global centrals was better aware of the real situation and cold-headedly calculated the lost profit, ”the chief explained in a conversation with RT. TeleTrade analyst Peter Pushkaryov.
According to Ivan Kapustyansky, a leading Forex Optimum analyst, in an interview with RT, in the current conditions, gold looks more profitable than US government securities, so global investors will continue to buy precious metals in the near future. Against this background, within six months the value of the asset may rise to $ 1920 per troy ounce, the expert believes.
Excess paper
It is noteworthy that in March Russia reduced the volume of investments in treasury more than three times - from $ 12.6 billion to $ 3.85 billion. The figure was the lowest over the past 13 years.
The active sale of US government bonds by Moscow began in the spring of 2018. Then, from March to May, investments decreased by more than six times - from $ 96 billion to $ 14.9 billion, as a result of which Russia was one of the largest holders of US government debt.
According to Alexei Kiriyenko, in this way the Central Bank tried to secure Russian foreign exchange reserves. So, in the event of growing geopolitical tensions, the States could freeze foreign funds in their accounts.
Meanwhile, according to Peter Pushkarev, since the beginning of 2020, the Central Bank has followed the global trend and strengthened the sale of treasuries, while increasing gold purchases. According to the regulator, from January to April, the share of precious metals in Russian reserves increased from 19.9% to 22.3%.
“Probably, the Central Bank also bought gold for the future - after all, at some point in March, prices dropped to $ 1,450 per troy ounce and became very attractive, after which they rose again to $ 1,750. Thus, now there is no longer any policy behind the sale of American debt by central banks, only financial mathematics, ”concluded Pushkaryov.