The past few months have been good for gold. The recent tumble in equity markets, higher volatility and fears of further trouble on the trade front have all prompted investors to seek out a safe haven. While the FTSE All World index has lost 10% since its September peak, gold has gained 7% over the same time period.
There is scope for further gains. If US Federal Reserve chairman Jerome Powell decides to stop raising interest rates, as he indicated he might, “or even go the whole hog and cut them”, gold could benefit, says Russ Mould, of platform AJ Bell. Such a policy reversal would reflect a weakening US and global outlook, bolstering gold’s appeal as a safe haven.
And because gold has no yield, its relative appeal grows when expectations of rate hikes dwindle. In addition, gold is widely seen as a hedge against inflation. With wages rising even as overall growth is slowing, stagflation could be on the cards, which would be excellent news for gold.
Note too that central banks wanting to diversify their foreign-exchange reserves are expected to buy more gold than last year; they should account for 12% of global demand, reckons Capital Economics. Finally, there is now talk of backing cryptocurrencies with gold, as Carol Lewis points out in The Times. That’s another reminder that gold has been a store of value and an alternative currency for centuries, while bitcoin is a fad.