Money managers and investors are ramping up gold purchases in wake of recent sell-offs in stocks across advanced economies, as heightened political risks and trade tensions have boosted the demand for safe-haven assets.
Kristian Rouz — Global gold prices are on the rise as international trade tensions, a wave of this outgoing year’s currency devaluations, and slowing economic growth across emerging markets have all spurred demand for safety among investors.
Gold has met greater demand not least due to declines in stocks across the globe as well, many of which were inspired by heightened political risks.
According to data from Bloomberg News, gold exchange-traded fund (ETF) holdings increased to over 2,180 tons on 25 December from their October low of just over 2,080 tons. ETF holdings of gold are now at their highest since early July.
Meanwhile, the spot gold price rose 0.5 percent on Wednesday alone, to $1,271.85/oz. — its highest since late June.
Wealth managers say gold prices are meeting the greatest demand since January 2017, and gold prices are poised to rise further due to the lingering threats of economic slowdown and political uncertainty across the advanced economies.
“The latest move on gold should be a stark reminder to investors that gold in any form should be an essential part of any long-term investment strategy as again they yellow metal has proven its weight when markets turn turbulent”, Stephen Innes of the investment company Oanda said.
Others, however, believe, the gains in gold prices are purely seasonal, and could be connected to the expected weakness in Q1 GDP growth and stock market gains in developed countries.
“We always see good demand for gold in the year-end. I would not be surprised if we see gold surpass $1,300 in the near future”, Yuichi Ikemizu of ICBC Standard Bank in Tokyo said.
Meanwhile, Bloomberg data suggests gold prices gained a substantial boost in wake of the most recent sell-off on Wall Street, where the benchmark Dow Jones Index posted its worst Christmas Eve trading session in history, losing roughly 650 points.
Investors have been dumping risky and high-yielding assets in favour of safety in the face of a US government shutdown, partisan tensions in Washington, as well as the cautious GDP growth projections for the next year.
For their part, ETF’s ramped up their gold holdings largely for the same reasons, with international trade woes adding to their confidence — gold is becoming a more attractive investment asset until the dust settles.
“This Christmas season, we have massive volatility in US stocks and the Nikkei sank into a technical bear market. The US government shutdown has added to the market’s list of worries”, Xu Wenyu of Huatai Futures Co. said.
For his part, US President Donald Trump said that the Federal Reserve’s policies of raising interest rates and cutting its bond holdings — which come as part of its tightening cycle — could have affected investor sentiment.
Meanwhile, the US Senate has yet to pass a federal budget for the next year, and some officials say the shutdown could extend into the New Year.
This messaging from Washington has been driving the most recent wave of global demand for gold. Other political risks behind gold’s recent advance include the Brexit stand-off between the EU and UK, the tensions over the Brexit deal project in the British Parliament, as well as the EU-Italy dispute over the latter’s 2019 budget.
However, some money managers say bullion could lose value again, once the lingering political disputes are resolved.