Although gold is traditionally seen as one of the most important safe havens against inflation, war, and political uncertainty, it has lost 6% of its value since the start of the year. According to Bloomberg, the decline was driven by easing fears of war between the US and Iran and expectations that monetary policy will tighten with Kevin Warsh becoming the chair of the US Federal Reserve (Fed).
However, the analysis emphasizes that investor interest in physical assets has not ended. The US budget deficit, which has been running at around 7% of gross domestic product since 2022, and a public debt approaching $40 trillion, suggest that inflationary pressures could remain elevated for a long time.
Inflation expectations and gemstones
Analysts cited by Bloomberg predict that even if central banks maintain tight monetary policies, inflation will remain in the 3.5% to 4% range. They warn that a new inflation shock could strongly boost demand for assets that preserve value.
In this environment, attention is turning to gemstones as an alternative asset class. According to the report, during the global inflation wave of the 1970s, stones like rubies, emeralds, and sapphires delivered extraordinary gains, while the price of some investment-grade diamonds increased several-fold.
Competition from lab-grown diamonds
However, the current market has different dynamics from the 1970s boom. The growing competition from lab-grown diamonds is reducing the investment appeal of natural diamonds. In contrast, stones such as emerald, zircon, tanzanite, peridot, and morganite are said to have a higher potential to preserve value over the long term.
On the other hand, the global investment wave in artificial intelligence and energy infrastructure is putting pressure on the prices of many commodities, from copper and uranium to rare earth elements. This strengthens the overall environment supporting physical assets.
Historical warning
Bloomberg also warns that investment in gemstones is tightly linked to macroeconomic cycles. Recalling that diamond prices fell more than 70% in the early 1980s as inflation subsided, it emphasizes that the performance of these assets depends entirely on price levels and global monetary policies.
In conclusion, the recent drop in gold does not mean the appeal of physical assets is over, but merely reflects a temporary shift in market sentiment. As long as the structural factors fueling inflation, budget deficits, and rising investment spending persist, gemstones and precious metals will remain an option for investors seeking to diversify and protect their portfolios.
