Gold offers solid protection against geopolitical tension – SocGen

The US dollar’s dominance has been challenged in recent years due to geopolitical events. The process of de-dollarisation is gaining momentum, and many experts predict that it will benefit the price of gold. Société Générale economists have reported that the trend is likely to continue, spurred on by high tensions and the Russian-Ukrainian conflict.

Central banks have been diversifying their portfolios and increasing their investment in gold. This trend is predicted to continue as countries look to isolate themselves from the USD. The longer the geopolitical situation remains tense, the faster non-aligned countries will look to de-dollarise. Société Générale recommends that central banks allocate 6% of their portfolios to gold, predicting that at a later stage, lower real yields will back the metal.

The reasons for this shift away from the dollar are rooted in a range of factors. Geopolitical tensions, trade disputes, and concerns over the US economy have all contributed to a loss of confidence in the US dollar as a reliable global reserve currency. The rise of China as an economic superpower has also put pressure on the dollar’s supremacy.

The US is likely to become more insular in the short term, with a focus on domestic economic growth and protectionism. This inward-looking approach has the potential to further destabilise global markets and accelerate the trend towards de-dollarisation.

Gold is viewed as a safe-haven asset and has traditionally been sought after during periods of uncertainty. Its rise in value during the 2008 financial crisis and recent economic turmoil in Europe is evidence of its perceived value. Gold has also been used as a hedge against inflation, which could prove valuable if the US government continues to print money at current levels.

Central banks are not the only institutions diversifying their portfolios. Investors often hold gold as a hedge against economic uncertainty or as a store of value. Gold exchange-traded funds (ETFs) have grown in popularity in recent years, with investors able to buy and sell gold on the stock exchange.

Inflation is a key driver in the purchasing of gold, as the price of gold often rises during periods of high inflation. The US Federal Reserve has pursued an inflationary monetary policy in an attempt to boost economic growth. This policy has resulted in historically low interest rates, which Société Générale predicts will remain at low levels for many years.

Gold has historically been seen as a store of value, immune to the fluctuations of currency markets. As investors become increasingly cautious of the US dollar, it is likely that gold will gain greater prominence as an alternative investment. Its limited supply and high demand have made it a popular choice among investors looking for long-term stability in their portfolios.

The rise in gold prices has also spurred on mining companies, who are increasing their investment in exploration and development. The potential for new discoveries and technologies in the sector has investors excited about the future of gold.

In conclusion, the trend towards de-dollarisation is likely to continue, and gold is predicted to be a beneficiary of this trend. Central banks and investors alike are diversifying their portfolios, seeking alternatives to traditional reserve currencies. As geopolitical factors continue to impact global markets, gold is seen as a safe-haven asset and a hedge against inflation. Its limited supply and high demand make it an attractive option for investors looking for long-term stability in an uncertain world.


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