Investors Scurrying to Gold
By Saghir Ahmed Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfill their moral obligations towards charitable activities).
Investors around the world are hurrying back to bullion.
Holdings in gold-backed exchange traded funds have risen to their highest levels in seven years, following $19.2bn in inflows last year.
Analysts say interest has picked up for a variety of reasons, including fears over slowdowns in big economies, rising geopolitical risks and an apparent loss of faith in traditional “haven” assets such as Japan’s yen.
But chief among them is a giant mound of negative-yielding debt, now tipping the scales at more than $13tn.
If buyers of bonds are being asked to pay for the privilege of holding them to maturity, then the appeal of gold — which yields nothing but also costs nothing to hold on to — is burnished.
“You’re seeing flows into the metal, it’s a global trend.” “The typical havens of safety are not that safe anymore and gold is getting a bid for that reason.”
The revival for the yellow metal comes after a fairly bleak few years, in which a steady global economic recovery pushed gold prices down as low as $1,000 a troy ounce in December 2015.
This year, however, gold prices have climbed to their highest levels since early 2013, at more than $1,600 a troy ounce. Global holdings in gold-backed ETFs have more than doubled since 2015 to a total of $141bn.
The surge in ETF buying has boosted exports of gold from Australia to the UK, where gold backing the SPDR Gold Trust is stored in vaults.
Australian gold exports to the UK rose by 1,384 per cent in the quarter ending September 2019 to $5.3bn, because of demand for bullion.
Gold’s rapid climb since the middle of last year has coincided with a fall in US real yields (adjusted for inflation). Five-year Treasury real yields were at minus 0.05 per cent this week, down from almost 1 per cent at the same point in 2019.
Negative bond yields “have fundamentally changed the appeal of government bonds versus gold as safe havens.”
“This has profound implications for long-term portfolio construction as gold becomes a necessity rather than an optimal allocation.”
Central banks have been the keenest buyers of gold, purchasing 5,019 tons of gold worth more than $200bn since 2009. Official gold reserves are now just 10 per cent below their all-time high of 38,491 tons in 1966.
Central banks last year bought 650 tons of gold, according to the industry body, the second highest level of annual purchases for 50 years.
Purchases have continued this year with Russia and Kazakhstan adding 9.7 tons and 3.5 tons, respectively.
“These so-called safe havens really don’t offer any yield protection so they’re in the same position as gold which doesn’t have yield protection either. But it’s liquid and you don’t have counterparty risk.”
Russia has also been keen to “de-dollarize” its reserves because of concerns about the threat of US sanctions. The demand for gold-backed ETFs has overwhelmed interest in shares of actual gold miners, which have languished.
Some fear that a crash from dizzy heights is just around the corner, even though the US Federal Reserve remains supportive, planning to leave interest rates where they are for the rest of this year.
In that respect, this new generation of “goldbugs” is much the same as the last, which rode a three-year rally in gold after the 2008 financial crisis.
“People are seeing more reason to seek safe haven assets.” “It’s one of those ironic situations where what’s good for the equity markets are also good for precious metals.”
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor or certified financial planner. Mr Aslam does not have anything for sale.)
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