Posted inAlternatives

For gold’s sake, stop talking safe havens

Is gold a safe haven for investors? In fact should we consider anything to be a safe haven these days? Actually, what do we mean by safe haven? Is everything a safe haven until it isn’t?

Without getting into any kind of philosophical or existential debate, ‘gold’ and ‘safe haven’ are being mentioned in the same sentence more often these days – or ‘gold’ and ‘haven buying’ in the case of the Financial Times last week.

Gold’s latest price spike was on the back of the recent terrorist atrocities in Brussels and while it might be the case that gold usually struggles to hold these kinds of gain, it has risen in price by nearly 20% so far this year, up 11% last month which was the fastest one-month rise in four years.

The share price for gold producers has grown even more rapidly, as demonstrated by the FTSE Gold Mines Index leaping by more than 52% since the start of 2016.

As well as physical and security prices going up, so is the number of private investors which, according to BullionVault, doubled in February as they continue to look for some kind of insurance for their money.

Gold is also seen as a safeguard against macro or economic uncertainty and there is plenty of that around these days: China’s continued economic slowdown; the Brexit referendum; the timing of any return to emerging market equity investing – sentiment is strong and on the rise but is not yet being matched by fund flows; low global economic growth; a continued fall in bank shares; political risks; interest rate concerns; nervousness around weakening liquidity; and low oil prices to name a few. 

While there is no yield gold looks attractive – it has always been seen as more valuable than cash when interest rates are low – so ongoing, as interest rates and therefore yield are likely to stay low for some time yet gold should continue to look attractive.

A look at the Investment Association’s (IA) specialist sector – where most of the commodity funds are housed – shows gold at the top of the pile over the past 12 months, according to FE Analytics, with Ruffer Gold returning 32% (42% year-to-date), and Investec Global Gold also up there, with a 12-month figure of 8% and year-to-date returns of 52%.

While this may all seem to be good news for gold right now, arguing it as a safe haven is still a tough call to make.

For example, the price of gold itself may have gone up by an impressive relative percentage figure in relative terms, to $1,200, but it is still a long way from its peak of $1,900 in 2011. It actually hit a six-year low at the end of 2015 so any percentage increase is starting from a very low base.

There’s more…

Part of the Bonhill Group.