When an economic crisis leads to inflation, gold comes to the fore as a safe and sustainable investment.

Why is gold considered a safe haven in times of economic crisis and inflation ?

Gold prices on the rise

Since 2019, gold prices have been rising steadily, from around €1100 per ounce of gold at the end of 2018 to over €1600 per ounce of gold currently. The Napoleon 20 francs Gold Coq Marianne (Louis d'Or) Gold Coin, meanwhile, has risen from €200 to over €350.

This increase in gold prices is explained by the successive crises of the Covid-19 and the war in Ukraine as well as by the general inflation which is developing in the world. Inflation has been rising recently and is expected to continue to rise in the coming months. As a result, gold prices could soon reach a new historical high.

What is the role of the yellow metal in times of inflation ?

For a long time, gold has had the paradox of being considered a safe haven while having a very limited use. In practice, gold has no real use, apart from its use in the design of jewellery and as a decorative element. It is by no means an indispensable resource for the functioning of our societies.

Yet gold has always been synonymous with wealth and played an important economic role. Even today, gold comes back into the spotlight when an economic crisis occurs.

When inflation occurs, many investors turn to the precious metal. As gold prices tend to rise during inflation, it serves as a hedge against losses caused by rising prices that reduce the profitability of other investments.

Why invest in gold in the midst of a financial crisis ?

It is wrong to think that inflation necessarily means a rise in gold prices. In reality, it all depends on the development of key interest rates on government bonds and other investments. Specifically, if central banks raise their rates to adjust to inflation, then the price of gold does not rise.

Conversely, it is when policy rates do not rise during inflationary periods that gold becomes a safe haven for investors.

In this case, real returns fall, sometimes to the point of becoming negative. Inflation is no longer covered by returns. Gold, which is insensitive to currency erosion, then attracts investors again. And the more investors turn to gold, the higher its price becomes.