Hang on to your gold

Goldhas slipped to a two-month low of around $1,220 an ounce, and may tread water for now. Global demand slipped by 16% year-on-year in the first quarter, largely because investors have stopped pouring money into gold-backed exchange-traded funds, according to the World Gold Council. Last year, investment demand in the January-March period reached record levels amid jitters over the Brexit vote and the US election. 

In the first quarter of this year, China’s appetite for bars and coins breached 100 tonnes for only the fourth time on record. But the geopolitical backdrop has settled down, which will temper investors’ appetite for safe havens, while confidence in the US has increased. With further rate rises looming, gold becomes less appealing because it offers no yield.   

Yet investors should keep around 5%-10% of their portfolio in gold. The risk of a political upset potentially sinking the euro is not off the table. Donald Trump’s protectionist instincts and the possibility of a sharp jump in inflation as central banks fall behind the curve are further reasons for holding gold as a form of insurance.