Should you continue investing in gold to preserve your savings?

An ounce of gold exceeds $1,500 for the first time since 2013… But is it really smart to turn it into a safe haven?

Does gold still shine as brightly in the minds of the French? The fact is that it is not because gold remains a safe haven that it is lucrative to bet on it in 2019. This is in any case what Ylan Cattan, founder of the financial investment consultancy Profits and Benefits, affirms..

According to a study last May, gold is today the fourth preferred savings solution for the French, after stones, life insurance and money deposits. Why such interest?

Ylan Cattan: Above all, it is an old French custom that allows maximum value to be stored in a single asset. This is a historical approach and has always been like this in France, especially because we do not have oil (almost inexhaustible source of performance). Just as the French are attached to stone, they are also attached to gold. As a reminder, today there are two ways to work with it. Or it is about buying physical gold with a quote or paper gold through stocks.

Furthermore, if the French are so attached to gold it is also because there is a psychological aspect. They are known to be pessimists. They are also known for being the people who save the most in the world. Furthermore, we must understand the fact that the French no longer necessarily believe in the banking system, nor in the financial system, nor even in the real estate system. Therefore, in their eyes, gold represents another form of diversification. The yellow metal is still an old custom, but it is maturing so that, in 20 or 30 years, it is very likely that the French will be much less willing to save through gold.

How can gold still be a good option to preserve your savings when it generates nothing?

It must be taken into account that gold only generates money when it is bought in times of euphoria, when it costs less, and when it is sold much more expensive in times of war, for example. Obviously, this is not good reasoning. This is especially true since France increased its taxes on gold last year because it wanted to increase its liquidity. The fact is that the French always tend to leave their coins and bars in the safe. Therefore, gold is completely illiquid. Except that the French state needs money to revitalize the economy. Therefore, its ambition is to make money more liquid. Hence, the executive decided last year to increase the tax on gold to 36% (compared to 30% with the single tax).

Do you think we should continue investing in gold in 2019?

Certainly, gold is still a good option for preserving your savings as long as you tell yourself that you won't need this money in the next 20 or 30 years. Ultimately, it's another way to preserve your savings and it's a way to keep as much cash as possible in a single investment vehicle.

However, it should be noted that there is still a double effect with gold. On the one hand, because it is sensitive to inflation. On the other hand, because it also happens with currencies. However, we believe there is an inflationary risk to consider. Therefore, it is necessary to pay attention to this point. Added to this is the fact that the levels currently practiced with gold are quite bearish, since the dollar is in an upward trend.

Beyond that, a study recently conducted by Refinitiv (a global provider of financial market data) shows that demand for jewelry gold (consumer gold) decreased by 6% in 2018 and that production, in turn, also decreased. fell 4% globally. This shows that consumption patterns have changed.

Clearly there are other more relevant levers to activate in 2019 to save. Especially since gold remains especially sensitive to the effects of the trade war. What we observed is that during much of 2018 (until last November), the price of gold fell 14%. Paper gold (or metal) subsequently recovered its stock market value (XAU) between November and mid-February by 12% due to an easing of tensions between Beijing and Washington.

Only since then they have recovered again and, therefore, gold has lost 4% of its value. Therefore, there are a series of factors external to gold that are not related to its market value. So be careful. However, it is worth noting that there have never been so many mergers in gold mines since the beginning of the year.

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