Gold will regain its shine

published 21 June 2019

"The gold bugs are out in force," says Garry White in The Daily Telegraph. The dash for this "financial teddy bear" suggests that investors see rising risks in markets and are seeking out an asset traditionally seen as the ultimate safe haven. Soft Chinese data and rising tensions in the Middle East have sent gold prices towards 14-month highs around $1,340 an ounce.

The main drawback of holding gold is that it pays no interest, but with government bond yields continuing to plumb the depths, reflecting fears over global growth, gold is looking more attractive on a relative basis. Interest-rate cuts by the Federal Reserve would also help gold by weakening the dollar. They would make the currency less appealing and gold more attractive since it is priced in dollars.

Then there's inflation. MoneyWeek has been pointing out for some time that markets may be underestimating the risks of an inflationary scare in an era of ultra-loose monetary policy. Peter Schiff of Euro Pacific Capital tells Barron's that if the economy slides into a "severe recession" then we could be in for another round of quantitative easing that is "much larger than prior ones". That will stoke fears of inflation too. "Gold does well in periods of dollar weakness, inflation, and economic uncertainty," concludes Schiff. "We are about to get all three."