By Arjavi Indraneesh
Gold
is re-emerging as a safe haven, leading to record price levels amid the turmoil
in other asset classes.
The
World Gold Council says gold’s performance in the near term is heavily
influenced by perceptions of risk, the direction of the dollar, and the impact
of structural economic reforms. As it stands, these factors likely will
continue to make gold attractive, the Council points out.
Gold
prices in India have touched an all-time high, with spot gold climbing above Rs
31,000 for 10gm, accompanied by a rise in futures prices to Rs 31,115, bettering
the previous high of Rs 31,035. Nymex saw gold rise 2% to $1677.50 an ounce,
its highest level since April 2013.
Analysts see continued demand for
gold as investors once again seek tail-end protection against increased
volatility and uncertainty across other asset classes. Hedge funds turned long
gold in early December after having traded it from the short side for six
months. According to analysts, this pickup in demand together with a continued
accumulation from long-term investors through exchange-traded funds should
provide enough support for gold to break higher towards the key area of
resistance between $1,360 and $1,375 per ounce where consecutive highs were set
between 2016 and 2018.
A
drop in US 10-year bond yields to a near one-year low, reduced expectations for
further rate hikes, a dollar that has stopped rising and, not least, the
turmoil in global stocks have all supported renewed demand for gold as well as
silver, given its historical cheapness to gold.
The
World Gold Council has attributed the positive outlook for the yellow metal on
the surge in Indian economy as well as the impact of China’s Belt and Road
Initiative. Emerging markets, making up 70 percent of gold consumer demand, are
very relevant to the long-term performance of gold. And India and China stand
out in this respect.
The
Council points out how the two countries have begun to implement economic
changes necessary to promote growth and secure their relevance in the global
landscape. It refers to India’s efforts to modernise its economy, reducing
barriers to commerce and promoting fiscal compliance and points out India’s
economy is expected to grow by 7.5% in 2018 and 2019, outpacing most global
economies and showing resilience to geopolitical uncertainty.
“Given
its unequivocal link to wealth and economic expansion, we believe gold is well
poised to benefit from these initiatives. We also believe that gold jewellery
demand will strengthen in 2019 if sentiment is positive, while increase
marginally should uncertainty remain,” says the latest WGC report.
Similarly,
efforts to promote economic growth in western markets are expected to result in
positive consumer demand, as has been observed generally in the US since 2012.
As a
consumer good and long-term savings vehicle, gold demand historically has been
positively correlated to economic growth. As a safe-haven, its demand
historically has been strongly responsive to periods of heightened risk. In the
short and medium term, however, the level of rates or the relative strength of
currencies, as well as investor expectations, can either enhance or dampen
gold’s performance.
The
report says that in longer term outlook, gold will be supported by the
development of the middle class in emerging markets, its role as an asset of
last resort, and the ever-expanding use of gold in technological applications.
In
addition, central banks continue to buy gold to diversify their foreign
reserves and counterbalance fiat currency risk, particularly as emerging market
central banks tend to have high allocations of US treasuries. Central bank
demand for gold in 2018 alone was the highest since 2015, as a wider set of
countries added gold to their foreign reserves for diversification and safety.
In
addition, gold speculative positioning in futures markets remains low by
historical standards after hitting record lows in the final months of 2018.
Furthermore, net combined speculative positions are negative for the first time
since December 2001. And large net short positions have historically created
buying opportunities for strategic investors, as such positions are prone to
short-covering adding momentum to price rallies. (IPA Service)
The post Gold Regains Status As Safe Haven Asset appeared first on Newspack by India Press Agency.
