Metals Notes

Gold benefits from investor discontent

So why is gold doing so well here in early 2016? As I write this gold is hovering in the low $1200.00 per ounce range, up over 10% year to date, already exceeding the high annual price estimate forecast by many ‘experts’. Even though metal prices regressed slightly from earlier highs during the trading days surrounding Valentine’s Day weekend, the week of February 8-12, 2016 was the best week for gold in four years.

The simplistic reason for the upward trend in gold is likely the recent stock market turmoil which historically sends investors into safe haven assets. Gold has benefited along with bonds and the Japanese Yen from the recent rush to safety from equities. Investors are worried about the risk of a global recession as well as the health of several major US and international banks.

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There has been a recent surge in demand for gold bullion coins like the Canadian Maple Leaf.

Investors have been rattled since the Bank of Japan, followed by the Central Bank of Sweden, introduced negative interest rates to try to stimulate growth. Many equity-based investors now fear any further deterioration in US or international economic conditions might result in our Federal Reserve lowering rates rather than raising them. While Fed chief Janet Yellen recently reaffirmed her belief that the US economy is healthy and interest rates will rise gradually, she refused to rule out cutting rates should economic data deteriorate.

Safe haven assets have done well across the board in 2016 as traditional equities have plunged. Treasuries are at their lowest since 2012 while foreign currencies, notably the aforementioned Japanese Yen, are showing renewed strength against the US Dollar. Cash is flowing into gold backed Exchange Traded Funds (ETF’s) at the highest levels since 2011. Assets in the SPDR Gold Trust, the world’s top gold ETF, rose 2% in one day (February 11th), the largest one-day inflow in months. Total holdings in the eight largest gold based ETF’s worldwide have risen by 3.8 million troy ounces this year after three straight years of decline.

One could reasonably conclude that to this point in 2016 Gold is successfully reclaiming its rightful position as the world’s premier tangible safe haven asset. The weak US and global equity markets as well as current gold demand from the public and ETF’s certainly substantiate that idea.