Gold was in vogue at the beginning of 2019, according to August Graham for City AM
. The World Gold Council reports that nearly 90 tonnes of gold were bought by central banks globally in January and February this year.
Graham says that this is “the highest level of growth in the first two months of the year since the financial crisis”. The World Gold Council says that “central banks reacted to rising macroeconomic and geopolitical pressures by bolstering their gold reserves”.
The council adds, referring to a survey it conducted, “76% of central banks see gold’s role as a safe haven asset as highly relevant, while 59% cited its effectiveness as a portfolio diversifier”.
City AM article
Higher and higher
Not only is the appetite for gold strong, its prices are continuing to rise. According to Sumita Layek for Reuters, the price of spot gold – where professional bullion dealers buy and sell gold for immediate settlement – rose to US$1,303.98 per ounce on 9 April 2019, an increase of 0.5%, the highest since 28 March 2019 when the price was US$1,306.09 per ounce.
Bob Haberkorn, senior market strategist at RJO Futures, attributes the price rise of gold to the International Monetary Fund’s downgrade of its global economic growth forecast for the year from 3.5% to 3.3%. “That, coupled with news over the weekend that China was upping its gold stockpiles, has gold trading higher at the moment,” says Haberkorn. Layek reports the IMF warned growth could slow further if trade tensions continue and if Britain leaves the EU in a “disorderly” manner.
The dollar index fell to its lowest in more than a week too, and “weak US data boosted demand for bullion”, Layek writes. David Meger, director of metals trading at High Ridge Futures, is quoted: “With some questionable data here in the US and abroad, there would be a stronger need for safe-haven assets and gold would certainly lead that charge … we believe gold is continuing its slow grind sideways to higher.”
Gold is one of the few assets that sustained during volatile conditions in Q4 2018, according to Scottish Investment Trust manager Alasdair McKinnon, in an article by Vicky McKeever for Citywire
From the beginning of Q4 2018 to the end of the year, the price of gold rose from US$1,185 to US$1,282 per ounce, delivering a 7% return for the year. McKinnon also adds that gold offers better returns than cash in the bank. Specifying mining stocks as the best way to invest, McKinnon says this is due to sector reform in recent years as miners seek to build a reputation as a “proper business”.
Recent mergers and acquisitions in the sector are a mark of progress. McKinnon says: “I think the need to demonstrate that they are proper businesses has created this series of mergers, as before they probably felt it was like turkeys voting for Christmas.”
McKinnon advises investing in mining stocks over bullion because the physical precious metal is more complex; for example, there are costs associated with bullion, including ownership and insurance. “Also, miners have this potential upside from mergers, creating an operational leverage to the gold price so long as it behaves as it’s supposed to.”
With the price of gold rising, is the precious metal a good way to diversify a portfolio? Leave your comments below.
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