Gold is still getting more popular - June 05, 2019

Gold is still getting more popular

Demand for gold remained high in the first quarter of 2019. After a record-breaking last year, it had its best kick-off in 6 years. Its stable performance lead Malaysian Prime Minister to word his idea about a gold-backed currency for East Asian trading. Why? Because the precious metal is harder to manipulate than currencies.

Gold is getting more popular by the day. We have already written about how Central banks bought more gold last year than in any year since 1967. (See: Money was poured into gold last year.) There are other signs of the precious metal gaining support: the idea of a new, gold-backed currency emerged just last week.

A currency for East Asia

Malaysian Prime Minister just worded his idea of a common trading currency for East Asia, reported Reuters last week. What was Mahathir Mohamad’s reasoning behind this? He believes that existing currency trading in the region is manipulative.

He said that his dream currency should be only used for trading purposes, so it’s not planned for national payments like the Euro is. “The currency that we propose should be based on gold because gold is much more stable”, he said according to Reuters.

Is gold really more stable?

Many believe that currencies should be backed by precious metal again. That was the case until the 70s, when something changed. President Richard Nixon cut the link between the US dollar (which already was the most important reserve currency back then) and gold. (See: How did the US Dollar become the most important currency of the world?)

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For 40 years, this system worked, but now more and more countries are turning to gold again. We can see that in the last years, gold did remain relatively stable. It goes up and down, but remains in the same ballpark, and it’s a lot harder to speculate against it than against currencies. (No wonder many look at gold as a safe haven in investments.)

Where does this lead us?

Last year had the biggest demand for gold ever since Nixon’s decision in 1971. The most important purchasers were Azerbaijan, Hungary, Iraq, Kazakhstan, Mongolia, Poland, Russia and Turkey, while China is also quite interested in the precious metal. The US still leads by far in reserves, but other countries are coming up too.

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We have been expecting gold to have a bright future for a while now. The World Gold Council also reported that after the record-breaking performance last year, demand “remained healthy” in Q1 too. They also mentioned that central banks drove “global growth with Q1 net purchases hitting six-year high”. This means that gold still seems to be a great investment, and if demand remains high, prices will probably go higher just as well.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.