Gold back in the ascendant

published 19 August 2016

Gold has jumped by almost 30% since early January, and is back to two-year highs around $1,350 an ounce. Overall demand for gold rose by 18% year-on-year in the first half, according to the World Gold Council. Investors' appetite for gold more than doubled. No wonder, then, that precious-metal funds accounted for all ten best-performing funds in Europe and the US in the first seven months of 2016, according to fund-research firm Morningstar.

One key reason for gold's ascent is the weak US data of recent months, which has made the next interest-rate hike an ever more distant prospect. As gold has no yield, a low-interest-rate environment bolsters its relative appeal. More broadly, people appear to be getting increasingly worried about where this central bank activism will lead. Not only has all the money printing failed to engender a strong and sustainable economic recovery, but central banks have blown up huge bubbles in asset markets and just keep pumping in air.

"The current path of monetary and credit expansion is unsustainable" that will eventually come to an end, says Diego Parilla in the Financial Times. This is "extremely bullish" for gold. Meanwhile, investors are mostly concerned about the risk of deflation and stagnation, which means that a return of inflation would come as a nasty surprise, triggering demand for a traditional store of value. The tight US labour market and the fall in the pound suggest that the US and the UK will be the source of concern over rising prices in the next few months.

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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.