Factors like these are hardly going to translate into an immediate rise in the price of the metal, but they help explain why the global gold market is so much bigger and more valuable than it was two or three decades ago.
As Mulligan explains, the long-term vision of the gold business starts from the very origin of the metal: the mining companies that extract it know perfectly well that it is a business that takes years, with a long task of planning, exploration and investment.
Investors familiar with the precious metal also know that it’s its long-term appreciation that counts , where it often wins out against the investment assets it’s often compared to: stocks and treasury bonds.
The problem is that some players whose objective is to earn quick and easy money also intervene in the gold market, with speculative movements that often involve maneuvers designed to lower the price of the metal, through legal or illegal means (such as the so-called ‘spoofing’, for which JPMorgan has been sentenced to pay a fine of 920 million dollars ) .
In moments of crisis and instability in the markets, it is common for the demand for gold to skyrocket, since it is considered by investors as an ideal asset to take refuge in until the storm passes, before returning to other assets with greater risk and profitability. short term.
This is what has happened in recent months, with the economic crisis caused by the Covid-19 pandemic: investor demand for gold, both in its physical form and in ‘paper’ products such as ETFs, has it has shot up to levels even higher than those recorded during and after the 2008 financial crisis.
According to John Mulligan, this could lead to a structural change in the demand for gold, thanks to the expansion of the investor base:
“The last crisis aroused the interest of European private investors in gold and changed the position on the precious metal of central banks, which went from being sellers to buyers. Gold proved its value as a haven when it was most needed, and those who bought it then have even maintained substantial demand for the metal .
This can cause an important structural change, which is the appreciation of gold by institutional investors and that can have enormous relevance for gold in the long term, convincing other investors that the metal is a better solution for several years to come. that with the aim of giving a ‘pitch’ in the short term.
So when someone close to you wonders why gold has lost a few dollars from one day to the next, you already have arguments to answer them. Or, if you prefer, just show him this graph of the evolution of the price of gold since 1972 , where he can see that the line is always rising.…