gold he was either formed just after the
big bang or by millions of tons of
meteors hitting the earth
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this isn't a geology lesson but it tells
us a very simple principle
there's only a finite supply of gold
but what affects its price
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in 1833 during the great gold rush an
ounce of gold would have cost you twenty
dollars
that same ounce costs almost eighteen
hundred dollars today
in the last fifty years alone it's made
average yearly returns of seven point
five percent a rise of nearly 4 000
gold can't power machines it doesn't
give you a dividend or a coupon and if
you want to physically own it you'll
need to pay somebody to store it for you
but
central banks don't hold crypto they
hold gold
we're going to examine the data to find
out if gold might offer investors
a little bit of financial security
during economic downturns
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before we start you need to know a date
that changed the price of gold forever
august the 15th 1971
the day that america ditched the gold
standard and severed the link between
the dollar and their gold reserves
gold's price from 1940 to 1970
was fairly slow and steady
but america had a problem
they needed money to stimulate their
economy and fight an expensive war in
vietnam
they couldn't make any more gold so they
found a new solution they ditched the
gold standard
the dollar became a floating currency
that could be printed endlessly while
gold supplies stayed the same
and that's what caused those golden
gains of 4 000
in just 50 years
if you're not thinking about inflation
perhaps you haven't been paying
attention inflation is rising at its
fastest rate in 40 years the question is
where does this end
at the start of 2022 u.s inflation hit a
40-year high
traders looked to gold to protect their
money investing
14.8 billion dollars into gold etfs
funds that track the price of gold in
just six months
but is gold the best hedge against
inflation the answer is that some
periods of inflation are more
significant than others
if inflation stays under 10
you can see that gold's price
trundles up fairly steadily but that all
changes when inflation gets out of
control
prior to 2022 u.s inflation only hit
double digits twice
in the 70s and the early 80s it was an
era of stagnant growth and high
inflation when investors had a lot to
worry about
11.2 percent was the breaking point when
investors began fearing that central
banks and governments had lost control
of their currencies
the higher inflation rose the more
investors headed to gold which pushed
its price up even further
gold wasn't a hedge against inflation
but against the fear that everything
else was falling apart
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if you're being bombarded by bad news it
stands to reason that you might start
feeling a little nervous stocks are down
about 800 prices are soaring 13 days
away from an explosion on inflation
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investors will often move in packs so
once a big sell-off starts it can be
difficult to hold your ground
if the s p 500 index the one that tracks
the 500 biggest companies in america
drops by 20 or more
it's called a bear market
it's happened nine times since the 1970s
and during those big stock market falls
gold's price actually rose by a median
rate of seven percent
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gold's biggest gains were back in the
1970s when it made profits of 170
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frightened investors faced with low
growth and spiraling oil prices flocked
to gold which pushed its price to record
highs
but things were a little different in
the 80s the world was bruised by
soaring inflation and governments felt
they had a mandate to inflict economic
misery to get it under control
interest rates rose liquidity was
tightened
and as a result gold lost out in the
1980s with sizable negative returns
but in every bear market since the us
government has tried to stimulate its
economy
low interest rates pushed investors
towards gold as returns from other
assets fell
while stimulus packages pumped markets
full of dollars which diluted its price
against a finite amount of gold
the result was that gold returned a
profit in five out of the last six bear
markets
which means that if you spot a bear
market on the horizon you might want to
keep a close eye on the price of gold
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there's a reason that goblins hoard it
and dragons sleep on it gold looks good
and mythical creatures aren't the only
ones who want to get their hands on gold
jewelry makes up 55
of the world's gold demand but how does
demand affect the price of gold
pandemic lockdowns in 2020 meant people
weren't physically able to go to jewelry
stores and gold's demand dropped by 39
but in 2021 there was a sudden rush for
gold jewelry in india and china
both countries consider gold a symbol of
wealth and status and they both urgently
needed a lot of it for rescheduled
parties and weddings
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the result was that gold jewelry demand
shot up by 67
from 2020 to 2021
but while demand for gold jewelry
usually remains fairly stable
investment demand is far more volatile
it accounts for things like gold bars
coins and exchange traded funds and they
make up 25
of global demand
and etfs when a trust owns gold on
behalf of the investor have a big impact
on its price
every 100 tons of gold etfs bought or
sold each month
taken in isolation moves the price of
gold by three percent
it means there's a strong correlation
between its price and the traded volume
of etfs
looking at this chart you can see they
almost move hand in hand
which means that when trade flows of
gold etfs start really moving up or down
gold bugs need to sit up and pay
attention
there are 12 men and women in the
federal reserve probably names that
you've never heard of but they have the
power to move markets they can change
interest rates and sell off bonds and
that can move something that we promise
is more interesting than it sounds real
yields
okay time for a dictionary definition
real yields are the predicted returns
from treasury bonds minus inflation in
other words the returns you make from
interest payments
the relationship between real yields and
the price of gold is a strange one
if you invert real yields or turn it
upside down then they almost follow the
same trajectory
if the yield rate starts going up it
means the federal reserve wants to
tighten financial conditions to contain
rising inflation
and high yields mean assets that offer
no fixed return like gold
can form
but when real yields drop and the
expected returns from us treasuries
tumbles
gold starts looking very attractive
yields can be a good predictor for the
price of gold but
if investors are anxious enough about
wider market conditions
even high yields won't deter them from
the metal that feels stable shiny and
secure
thanks for watching and don't forget the
price of gold will always vary on
ever-changing market conditions don't
forget to subscribe to stay alerted to
our regular chart analysis videos on
various markets throughout the week and
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financial topics of the day
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