Gold prices have rebounded since the poor US payroll data for May came out last week. They are now close to a one-year high around $1,300 an ounce. The jobs report made an imminent interest-rate rise by the US Federal Reserve far less likely. Rising rates make gold, which pays no yield, less attractive, so a delay is good news for the yellow metal. A broader point is that higher interest rates are a sign that the economy is returning to normal, which bodes ill for an asset that thrives on bad news.
On that subject, former Bank of England governor Mervyn King, rather unusually for a central banker, has issued a stark reminder of the importance of holding some gold as portfolio insurance. It is typically uncorrelated with other assets, and it has been a store ofvalue for thousands of years. "Try to think through what mix of assets gives you the chance of surviving some big event," he says.
"I am very struck by the fact that over many years central banks, governments and individuals have always, despite the protestation of economists, held some gold in their portfolio when unexpected things happen, particularly when governments rise and fall, gold is a means of payment that everyone is always prepared to accept I think that's why even central banks have always had a role in their portfolios for gold."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In the event of "some awful conflagration", he concluded, you will need an asset that, unlike cash, equities or bonds, is not "dependent on the goodwill of other countries".
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
