Glit­ter­ing run

In­vestors should heed head­winds as cau­tion sends gold surg­ing into record ter­ri­tory

The Daily Telegraph - Business - - Front Page - Jonathan Jones

The gold price reached a record high of $1,944 (£1,511) per ounce yes­ter­day as in­vestor cau­tion con­tin­ues to push the metal’s value higher. De­spite be­ing in un­charted ter­ri­tory, an­a­lysts ex­pect it to keep on go­ing well past the $2,000 mark.

A sur­vey of more than 1,300 DIY in­vestors, con­ducted by on­line gold mar­ket­place Bul­lionVault, showed they ex­pected the price to rise by 30pc by the end of 2020. This would take the price well past $2,500.

The pre­vi­ous record of $1,920 per ounce was set in Septem­ber 2011 but this took a steady five-year up­ward tra­jec­tory boosted by the re­sponse of cen­tral banks to the 2008 fi­nan­cial cri­sis.

The lat­est peak has oc­curred in less than half that time as cen­tral banks re­turn to low in­ter­est rate poli­cies and bond-buy­ing pro­grammes.

Gold had been los­ing ap­peal, with stock mar­kets the pre­ferred space for most in­vestors. For a while the Amer­i­can cen­tral bank was rais­ing in­ter­est rates, mud­dy­ing the out­look for gold. How­ever, it be­gan re­vert­ing to its old dovish ways – ini­tially to stave off an eco­nomic slow­down and later to coun­ter­act the dev­as­tat­ing im­pact of coro­n­avirus.

The main fac­tors that drive in­vestors to gold are in­ter­est rates and safety – both have boosted de­mand in re­cent months. Near-zero in­ter­est rates are a pos­i­tive for the gold price.

When the yields from cash or low-risk gov­ern­ment bonds are high, the ap­peal for gold, which yields noth­ing, di­min­ishes.

The re­verse is also true, and low or neg­a­tive yields push safety-seek­ing in­vestors to­wards the metal, push­ing up its value.

The out­look for gold is also linked to the strength of the US dol­lar. A weaker dol­lar tends to boost bul­lion as it is seen as a store of value and the coun­try’s bond buy­ing pro­gramme is ex­pected to weaken the cur­rency.

Ben Sea­ger-Scott of Til­ney, a fund shop, said: “Gold acts al­most like a pseudo-cur­rency, ex­cept no cen­tral bank can print un­lim­ited amounts of it and de­value it.”

Data from the Com­modi­ties Fu­tures Trad­ing Com­mis­sion, the Amer­i­can reg­u­la­tor, showed op­ti­mism for gold among pro­fes­sional in­vestors such as hedge funds, traders and banks peaked ear­lier this year and had re­duced as the price has risen. How­ever, there were still more buy­ers than sell­ers.

An­drew Dun­can, of Kil­lik & Co, a bro­ker, added that the ac­tions of gov­ern­ments and cen­tral banks would lead to in­fla­tion in years to come, and in­vestors were “buy­ing gold as a hedge against in­fla­tion in the longer term”.

Ian Jensen-Humphreys of Quil­ter In­vestors, a wealth firm, said he had re­cently bought bul­lion for his clients via an ex­change-traded prod­uct, a fund listed on the stock mar­ket that uses de­riv­a­tives to track the price of gold.

Shares in gold min­ers have also been ris­ing and could pro­vide an al­ter­na­tive way to in­vest in the metal. Mr Dun­can said that shares of gold min­ers such as Amer­i­can firm New­mont Cor­po­ra­tion have risen strongly.

Those un­sure of se­lect­ing their own stocks could also look to spe­cial­ist ac­tive funds, such as Ruf­fer Gold or Black­Rock Gold & Gen­eral.

De­spite the op­ti­mism sur­round­ing the pre­cious metal, in­vestors should be wary of head­winds fac­ing the metal. Coun­tries such as China, Rus­sia and Turkey have been buy­ing gold want­ing to avoid hold­ing re­serves in the US dol­lar, as geopo­lit­i­cal ten­sions be­tween the states and Amer­ica rise. How­ever, as coun­tries di­vert more of their cap­i­tal to­wards the pan­demic, re­serves may be sold off caus­ing prices to fall.

Gold jew­ellery de­mand may also de­cline as house­hold earn­ings have been re­duced due to coro­n­avirus. How­ever, fluc­tu­at­ing de­mand tends to have less of an im­pact on the mar­ket.

The gold price hit a record high yes­ter­day but ex­perts be­lieve it will con­tinue to rise

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.