Gold – a safe haven investment

At more than $1,500/oz, gold is breaking new records. Gold serves many purposes – it is a symbol of wealth and prosperity, an exceptional industrial component, the subject of speculation and a safe haven investment.

December 18, 2019

L'or

Sharp rise in gold prices in 2019

With limited availability – it is estimated that around 190,000 tonnes of gold, or around 77% of accessible resources, have been mined – and as a liquid asset without negative returns or open exposure, gold has undeniable advantages, especially in the current environment.

We consider that the recent rise in prices is essentially due to three main factors.

First, while interest rates remain historically and persistently low due to expansive and unconventional monetary policies, central banks purchased 224.4 tonnes of gold in the second quarter. This took central bank purchases to 374.1 tonnes mid-year, representing the sharpest half-year net increase in global gold reserves recorded by the World Gold Council for 19 years. These purchases, estimated to amount to 10% of the world’s annual production, were made by a large number of countries – mostly emerging markets, led by China. 

In China, gold is held as a reserve asset and it is also used as currency to pay for Russian oil.
As well as strong demand from central banks, the jewellery market has seen a sharp recovery, especially in India.
In addition, investors’ fears have been stoked by the complex geopolitical situation (negotiations between China and the USA, Brexit, Italy, tension in the Middle East, etc.) as well as by gloomy macro-economic forecasts (recession in Germany, slowdown in China, etc.).

Gold prices are also being pushed up by a growing preference for physical assets among investors.

 

An attractive investment

Gold is a luxury good and an investment, offering unique, lasting benefits to investors.

First, the known, broad supply of gold limits uncertainty and volatility. The precious metal has many uses, which reduces its correlation with other assets and allows it to play a role in hedging against systemic risk and a sharp slide in the stock markets. It also provides effective protection against inflation.

By easing the effects of volatility and protecting against uncertainty, gold is an essential long-term component of any asset portfolio.

Globally, demand for gold investments has increased by an average of 15% per year since 2001, and there are many ways of investing in the metal.

We expect the trend to continue as demand remains strong.

 

Advantages of paper gold

While there are many ways of investing in gold, ranging from holding physical gold to investing via a fund or an ETF, for example, they do not offer as many advantages as paper gold (XAU).

Paper gold is traded on the currency markets in the same way as currencies like the euro (EUR) or the US dollar (USD), for example. It can therefore be easily bought and sold on the spot market.

Paper gold reflects trends in the price of physical gold while retaining the liquidity of a currency.

It also allows investors to avoid the constraints of holding physical gold, such as the production of bars, the holding of a safety-deposit box and insurance costs.

December 18, 2019

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