Petri Redelinghuys of Herenya Capital Advisors on gold and its status as a safety investment.

Historically, gold has been the safest investment in times of market disruptions and crises. With the conflict in the Middle East disrupting the world’s energy supply chain and causing worries of shortages and inflation, one would think that the market would be rushing to invest in gold, but a look at statistics shows a rather disappointing performance by the metal. But Why?

Gold’s performance in the recent months seemingly goes against its image as an inflation hedge.

The Change

The biggest factor is a change in mindset. Once again, referring to history, gold has the ability to catch up to and match inflation over long periods of time. But recently, it has become a common practice to invest in U.S. treasury bonds, as the Federal Reserve tends to put the interest rate at slightly above inflation, making them a more attractive safety option in the short term.

Another factor is gold’s liquidity. It’s a very liquid asset, and when a crisis strikes, people sell their gold to cover their losses elsewhere or to reallocate their funds. As a result, we’ve seen gold drop time and time again, during the earlier periods of a crisis, only for it to catch up to inflation and become the inflation hedge in the medium term.

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