Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
Gold is back in fashion
Gold’s reputation as a safe haven is also coming to the fore now that markets have become more volatile and the political backdrop less predictable.
Last year was not a happy one for investors in base metals. The GSCI Industrial Metals index slipped by around 15% from its year-high in June, and the gauge lost another 7% from mid-December to January.
It may have bounced since, but don't expect a sustained revival, says Capital Economics. Base metals prices are likely to weaken as the Chinese economy keeps slowing. The gold price rebound, however the yellow metal is now above $1,300 for the first time since last summer does look sustainable.
Central banks are stocking up
The key theme here is a need (especially among emerging- market central banks) to diversify currency reserves away from dollars, to which they tend to be highly exposed. This has been the case for several years, but geopolitcal tension seems to have accelerated the trend. There should be plenty more demand from this source over the longer term. As Swaha Pattanaik points out on Breakingviews, China's economy accounts for almost a fifth of global GDP but its currency makes up less than 2% of central bank reserves. "Reserve managers may not know how long it will take for China's currency, or the euro, to nibble away at the dollar's pre-eminence." But they are beginning to shift away from the US currency.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Gold's reputation as a safe haven is also coming to the fore now that markets have become more volatile and the political backdrop less predictable. In this context, it's interesting to note that Azerbaijan's sovereign wealth fund, SOFAZ, is set to double its gold holdings to 100 tonnes in 2019 after resuming purchases followinga five-year break, notesZulfugar Agayev on Bloomberg. The fund's executive director Shahmar Movsumov says the fund wants "something that is not someone else's credit risk. In a world where you see the changes in geopolitics and in the dynamics between superpowers and their imminent impact on the financial sector, you want to be on the safe side".
The SOFAZ fund won't be alone: the holdings of gold-backed exchange-traded funds have hit a near-six-year high as investors have warmed to the precious metal, notes Capital Economics. The possible return of inflation (see page 4) is another reason to hold gold. One easy way to bet on the gold price is through the ETFS Physical Gold exchange-traded fund (LSE: PHAU), which tracks the spot price .
Explore More
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.
Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.
Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.
