How does modern monetary policy affect the price of gold?

In the third decade of the XXI century the 2000s were replaced by the era of instability: military conflicts, oil price collapse, confrontation between Russia and the West, along with a coronavirus pandemic in 2020-2021 led the world governments to implement monetary policy instruments to stabilize the global economy.

What were the main instruments used to do this?

• changes in banks' required reserves;
• changes in the refinancing rates;
• the use of an open market for operations.

To make it simple, the Central Bank is now the key operator in the global market rather than private investors, banks, and stock market players. Monetary policy implies precise regulation of the money supply, interest rates, and prevention of inflation. Such a controlled infusion, on the one hand, strengthens the economy, but on the other hand, it becomes a restraining factor for investment projects.

What happens to the main objects of investment when monetary policy is implemented?

A clear regulation of monetary flows is the main feature of fiscal policy. At the same time, its introduction indicates a critical situation in the economy, when the investor confidence quorum becomes extremely low:

• the price of oil is falling, and it becomes risky to rely on it as a primary tool for increasing profits;
• government securities are also becoming an unreliable asset, and trust in them is getting weaker;
• cryptocurrency itself is not yet so firmly established among large investors;
• commodity assets other than oil have had to be completely discounted because of the pandemic.

And only gold maintained its positions and even strengthened them.

How has monetary policy affected the price of gold?

Not only has gold not fallen in value since the introduction of monetary policy, but since 2020 it has reached its all-time peak over the past few decades.

Central banks in most countries began to actively buy the precious metal as a reserve asset, which is independent of market fluctuations.

Private investors also switched from a wait-and-see approach to active buying of gold - during the crisis of the commodity economy when companies are idle, business is closed or suspended, and real estate is becoming increasingly less liquid, it is gold that remains a kind of "standard of stability," and it is worth taking advantage of it.

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