All records have been broken since 2020. Investors: moment of great uncertainty, push upwards already started with the pandemic from Covid-19
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The Russian invasion of Ukraine has many consequences, first of all a devastating humanitarian impact. But, underlines James Luke, manager of the Schroder ISF Global Bond fund, Schroders “although we cannot ignore the number of people directly affected, as investors we are aware that this is a time of great uncertainty.
According to Luke’s analysis, reports Radiocor,” during times of market turbulence, investors look back to gold, which is perceived as a safe haven asset.. When Russian troops invaded Ukraine on February 24, the yellow metal reached $ 1,974 / ounce, the highest since September 2020. ”
Before the current crisis, the price of gold was around $ 1,800 / ounce, with no major changes since the end of 2020. Historically, in Europe it is the safe haven asset par excellence and firmly in the hands of the Swiss. On the European scene, the Swiss know that “Cash is King”: Switzerland’s total reserves of foreign currency and gold reserves amounted to $ 679.3 billion in 2018, more than the country’s annual GDP, which boasts more reserves in Europe. currencies and gold of Germany and Russia combined, according to estimates by Statista. In the period, Italy was in sixth place in the European context, with 136 billion dollars. The United States has the largest gold reserves in the world, amounting to over eight thousand tons. Why gold
Gold has been a symbol of wealth and prosperity for millennia , even the fans of Uncle Scrooge, a cartoon character, know it. It has managed to maintain its value over the centuries and, unlike banknotes, coins or other assets, it is a stable system for passing on and preserving the value of wealth from one generation to the next. Central banks and nations often accumulate gold reserves as collateral for deposits and currencies.
Historically, gold has always been a guarantee against inflation, due to its tendency to increase in value as the cost of living increases. This stability is particularly relevant in times of economic recession , in which the price of gold often does not suffer the repercussions of the equity market and other volatile financial assets with the same intensity. This is why gold is therefore seen as a safe haven asset , especially in times of crisis.
Gold reserves and currencies in Europe 2018
According to the analysis of Statista, based on a report no longer available from the Russian Central Bank(but saved on the Internet Wayback Machine), China was the largest foreign holder of Russian central bank reserves as of June 30, 2021. 13.8% of total Russian reserves, in gold and foreign currency, were located in China. roughly the same share of Chinese currency Yuan Renminbi.
The largest share of reserves, however, is in Russia itself, in the form of gold (21.7% of reserves). With the imposition of international sanctions against the Central Bank, Russia would likely be left with around a third of current reserves of $ 630 billion in the form of domestic gold and Chinese yuan. The placement of another 10 per cent of the reserves was not specified in the report, while 5 per cent was in the hands of international financial institutions.
Meanwhile, gold continues itsrace to the top . At the opening of trading on Monday, it is back above 2,000 dollars an ounce for the first time since the summer of 2020, a breath away from the all-time high with the new upsurge triggered by the market turbulence due to the Russian-Ukrainian war.
During morning trading, the ounce reached $ 2,005, then rose by 1.80% to $ 2,001. Gold had surpassed $ 2,000 in February 2020. The prospect of an extension of sanctions against Russia on oil, which has triggered stock market falls, leaps in crude oil and a renewed investor rush towards oil, kept traders under strain. the dollar, which, like gold, is used as a safe haven asset in periods of volatility.
According to Schroeders’ expert, “the massive sales by large institutional investors , particularly in North America, more than offset the strong demand from jewelry manufacturers, central banks (as a reserve asset) and bullion and coins. (often a form of saving / investing.) Gold tends to reflect changes in macroeconomic conditions well, and the price falls at the end of 2020 and 2021 were largely due to the anticipation of monetary / fiscal policy normalization after the crisis from Covid-19. The demand for gold was already increasing before the crisis between Russia and Ukraine, stresses James Luke. But even before the crisis intensified, “we were already noticing that the institutional demand for gold aswallet protection tool was becoming positive. We believe that this will continue in the course of 2022, regardless of the evolution of the geopolitical situation. ”
Again according to the economist, it is possible that the world landscape will face a period of” stagflation (low growth and high or rising inflation) high, as well as the likelihood of finding ourselves in a long period of financial repression with negative real interest rates. This is a very positive macroeconomic environment for gold, “he concludes, while” the cryptocurrency segment , which may have taken capital away from gold in recent quarters, is under increasing regulatory pressure. ”
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