The demand for gold has risen in recent weeks, as investors flee to this “safe-haven asset” amid concerns over global uncertainty, and fears the US Federal Reserve will hike interest rates.
David Jones, chief market strategist at capital.com says: “Gold has regained its shine among investors – with stock market weakness definitely helping here. It continues to hold in the $1220 area, its highest since the end of July. Given the nerves that remain in stock markets, gold could well experience a much better finish to the year than it has seen in recent months.”
But is that growth in demand and therefore value, sustainable?
The Pure Gold company’s CEO, Josh Saul, has spoken at length on market conditions and gold prices. Firstly, he has noted that the pace of gold purchasing “hasn’t been seen” since the Brexit announcement in 2016, when the price of gold leapt 23%.
“Investors seemed panicked and genuinely scared that they could not liquidate stocks quick enough for them to purchase gold while the price was still low,” he said.
The price of gold has climbed 3% recently, although the price is down 10% on a year ago and 30% off its 2011 all-time dollar high.
Nearly two-thirds of those investing in gold sold equities to fund their purchase, and half of those came from investment banking, he notes.
“Their overwhelming concern was that this slide could mark the beginning of a deeper correction. Three-quarters of our clients think there will be a further decline in global markets.”
While there has been some fluctuation in gold’s price, it is viewed more as a defensive investment rather than one that will gain capital value.
“Gold acts as a hedge during times of crisis, including an equity crash,” said Saul.
“Whilst some people are hedging their losses in the equity market with the gains they have made in the gold price, others have decided to remove absolute exposure to equities and put a larger percentage of their overall net worth into physical gold.”
Saul says that smaller investors enjoy gold because, as legal tender, any capital gains made on its sale is tax-free.
EU nationals have also been purchasing gold, over what he believes are concerns that Euro’ value could be eroded if other countries follow the UK out of the EU.
“Gold tends to increase in value as other asset classes fall,” he concludes.
“Whilst it doesn’t provide an income or dividend, it is viewed as a store of wealth during uncertain times and a hedge against uncertainty.”
Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.
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