The World Gold Council recently released an insightful report titled, "Gold 2048: The Next 30 Years for Gold."
This report looks at overarching demographic, technological, economic, political, and social trends around the world and their implications for the gold market.
The report has brought together top gold industry experts as well as world-renowned authors and economists who discuss the underlying macro forces that will drive gold in the next 30 years.
This is an eye-opening yet lengthy read that I highly recommend to all investors (find it here). To give you a glimpse of what’s inside the report, this short overview presents the highlights and takeaways from an investment perspective.
Trend #1: The Rise of the Middle Class in Emerging Markets
According to the report, in the next 30 years, demographics will play an increasingly important role in shaping the global economy.
The big story of the next quarter-century will be the rising middle class in emerging markets, particularly in China and India. Recent reports estimated that, over the next 17 years, 170 million Asians will enter the middle class every year.
India, the largest consumer of gold, is set to become the fastest-growing economy in the coming decades. If it manages to pull off its ambitious political and economic reforms, its middle class might soar from 19% to 73% of total population.
“Not only will the Indian middle class become a driving force within the Indian economy, but its aggregate purchasing power will result in the creation of one of the largest markets in the world,” says the report.
China’s middle class, too, is rapidly expanding. But unlike India, the Chinese are facing major demographic headwinds. Key among them is an aging population, which might curb economic growth despite the gains from the expanding middle class.
Takeaway for gold investors:
India and China are the biggest consumers of gold worldwide. As their middle class and aggregate purchasing power grow, gold demand is expected to soar.
Trend #2: A Shift in Gold Demand and Supply Dynamics
Jewelry and investment-grade bullion are not the only drivers of gold demand. Gold has wide industrial applications as well. Practically every piece of electronics has a little gold used as highly conductive and corrosion-resistant material. Unknown to many, gold is even effectively used in medicine.
Here’s a quick rundown of technological trends from the report that will spur industrial gold demand:
- The adoption of the Internet of Things (IOT) will lead to an explosion of electronics (and gold) used in all consumer durable goods.
- A shift to hybrid and electric vehicles demand far more high-end electronic components that use gold.
- Gold compounds show promise in clinical testing and even drugs as a new class of antibiotic.
- A booming solar panel industry will demand more gold as a core catalyst component.
There are many more gold applications, but industrial applications make up only a small part of aggregate gold demand. Investment demand has a much more profound impact on the gold price.
The experts who contributed to the report predict that the growing popularity of gold-backed ETFs as well as advancements in fintech will be some of the biggest drivers of gold demand in the coming years. The convenience and cost-effectiveness that technology brings will make gold attractive to more investors, including Millennials.
Meanwhile, gold supply is under major constraints due to rising operating costs, scant gold discoveries, and low gold prices.
The report sums up the current situation in gold supply:
We expect new mine supply to decline over the next 30 years, hit by rising costs. Metals Focus estimates that, even today, new gold mines need a price of about US$1,500/oz, and with costs having increased at a compound annual rate of 10% over the past 15 years, additional ESG costs are likely to mean that even higher gold prices will be required in the future.
Takeaway for gold investors:
Due to operating constraints, gold miners will struggle to keep up with the growing gold demand. This, in turn, will put upward pressure on gold prices in the long run.
Trend #3: A Volatile Future
The investment landscape itself will radically change in the next 30 years. A combination of demographic, technological, and macroeconomic trends is creating structural changes in the global economy that will have profound implications for investors.
- Working-age populations are shrinking in the developed world. Labor scarcity will put a strain on economic growth and equity returns. A rise in wages due to constrained labor supply is likely to mark the end of the low inflation era.
- The rise of automation and AI—displacing increasingly more workers—will elevate political and social tensions and bring more volatility to the markets. We might also expect Western politics to become more redistributive, which will put a greater financial burden on investors via rising taxes.
- The impact of demographics will have a profound effect on the dynamics of global powers. The Western world will be increasingly burdened by aging populations, scarce labor, and stagnant economic growth. Conversely, India and China are set to reach their golden demographic spot in the coming decades. Since demographics have a direct effect on economic growth, we are likely to witness an unprecedented shift of economic power from West to East. As a result, geopolitical tensions will rise.
- The widespread adoption of big data and artificial intelligence in investing will increase automated trading in liquid markets. Automation and fast data dissemination will make investment preferences more correlated, so true diversification will be hard to achieve.
Takeaway for gold investors:
The next 30 years are going to be highly unstable, both politically and financially. As history shows, gold performs best in volatile times—and is the best, time-tested hedge against any crisis.
A No-Brainer Investment
These three macro trends suggest that gold is a no-brainer long-term investment. With an uncertain future ahead of us, minimizing your portfolio’s volatility is as important as maximizing returns. And this is where gold bullion comes in handy.
Gold has been around as a medium of exchange for 5,000 years and, unlike most paper currencies, gold’s value has never gone to zero. Even better, the metal is not correlated to the stock market—gold rose in the last five out of seven recessions, offsetting investor losses in equities.
As such, allocating 5–10% of your investable assets to gold is a prudent move that will give you peace of mind amid the political and financial tensions that are already looming on the horizon.
Note that gold has been out of favor lately, which has pushed its price down to this year’s lowest point. So today is a good time to make a move into gold or increase your allocation.
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Olivier Garret is the founding Partner and CEO of Mauldin Economics, a leading publisher of financial research geared to individual investors and institutions.
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