Gold - Safe, Sound And Stable

In my weekly blogs, I generally talk about gold’s performance, why it has behaved in a particular manner in the respective week, how it looks like and a major economic outlook of the yellow metal.

But today I would like to write about gold from the investors or the markets view point- as to why gold has been in high demand in spite of rising prices, should you look at gold from an investors perceptive, should you diversify your portfolio in to the yellow metal etc.

Gold creates a feeling of safety and security. Most retail investors and fashion and lifestyle consumers trust gold more than the currencies of countries

A bar of gold always retains its value, crisis or no crisis. This creates a sense of security.

As we all know that gold is an asset that has highest liquidity. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.

One of the main reasons, apart from de-dollarization, why central banks have started piling up their reserves.

A study reveals two out of three investors sees gold as a safeguard against inflation and currency fluctuation. A similar number believe gold holds value in the long term, owning the precious metal makes them feel secure and is more trusted than most currencies.

Instead of discouraging people from buying gold, or convincing them that gold is an irrelevant asset, many of these financial advisors are increasingly honest about the true properties of this monetary metal and what importance it holds in your portfolio.

Seeing gold’s safe haven appeal and store value, I wouldn’t be wrong if I say that it is one of the most sought after precious metals.

It is considered as a global medium of payment and it preserves high purchasing power. A country high on gold reserves is always considered as an economically rich and sound country. Gold is highly durable and enduring.  In the past gold was also considered as a means of currency. Even today, every reserve currency in the world today is underpinned by vast gold reserves. Gold is and will always be considered as a strong pillar of stability for any monetary system.

On the other hand when we see the other assets in its class- Shares, bonds and other securities, real estate etc, none of them are risk free and subject to high fluctuations and prices drops during uncertainties. But gold will always yield its value even when times are critical.

Looking at the current year- 2019 has certainly been an exciting year, with gold breaking through long-defended resistance levels.

When we look at the current markets we can see that gold is being pulled and pushed by various factors simultaneously, in fact tether are some factors that contradict itself in influencing gold prices-.

The topics dominating the headlines — Brexit, the US-China trade war and the possible impeachment of US President Donald Trump — all have an effect on the global economy.

In  Prithviraj Kothari's opinion, The performance of gold in 2019 looks even more impressive relative to other precious metals such as silver and platinum.

Strengthening US dollar contradicted by slow global growth- The price of gold and stock markets have seen record highs and the US dollar is strong. At the same time, the US Federal Reserve and European Central Bank (ECB) have been cutting interest rates, yields on $17 trillion (Dh62.4tn) of bonds have turned negative and global economic growth has slowed.

The International Monetary Fund revised down its projections of global economic growth for the fifth time last month with the world’s economy expanding 3 per cent this year, its slowest expansion since the 2008 global financial crisis.

Against this interest rate backdrop, defensive positioning by investors is on the rise, which is supporting gold’s upward price movement in several ways. As global uncertainty has risen, investors have responded according to conventional wisdom, turning to fixed income markets for both safety and stability.

Anybody who’s holding 50 per cent in equities and going towards riskier, non- investment-grade bonds because they need yields should have between 5 and 8 per cent gold in their portfolio.

despite a slight risk of prices declining to the $1,450 an ounce level first, the overall picture for gold is optimistic as investors look ready to buy more.

Gold Will Get Its Support

Negative news coming from all over proved to be positive for gold during the week.

Weakness in global growth, lack of clarity in US China trade dispute, weak economic data coming from Asian markets, negative Asian equities, Powell’s speech, unrest in Hong Kong and other ongoing risks, together proved to be good support for gold-

Trade Dispute- On the Sino-U.S. trade front, tensions seemed to have escalated again as the Wall Street Journal reported that the trade talks have stalled over agriculture purchases.

The Journal cited sources and reported that China is unwilling to quantify its farm purchases, a commitment China made as part of a phase one trade agreement.

The news dented hopes that the phase one deal will be signed sooner rather than later, according to the article.

China is also resisting U.S. demands to make reforms on forced technology transfer, which the Trump administration has previously said would be addressed in future trade deals with Beijing.

Furthermore, President Trump revealed that “we were so close to a deal” while speaking at the Economic Club of New York, and went onto emphasized the administration’s approach to “tell it to everybody: if we don’t make a deal, we’re going to substantially raise those tariffs.”

Weak Data numbers- A set of worse-than-expected economic data were cited as providing support for the yellow metal.

Gold prices gained on Thursday in Asia following the release of weak economic data coming out from China, Japan and Australia. Sino-U.S. trade uncertainties also attracted some safe-haven demand.

Powell’s Speech- fresh remarks from Fed officials suggested that the central bank will move to the sidelines and endorse a wait-and-see approach at its next interest rate decision on December 11 as Chairman Jerome Powell told US lawmakers that “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.”

U.S. Federal Reserve Chair Jerome Powell on Wednesday told the Joint Economic Committee that negative interest rates sought by Trump are not appropriate for the U.S. economy right now.

He also added that the central bank would probably stop (with interest rate cuts) where it is unless there is a “material” change in the economic outlook.

Chinese data- Gold is being supported as the Chinese industrial production and retail sales came way below expectations. In China, October’s industrial output, retail sales and fixed-asset investment all came in worse than forecast, while Japan’s Q3 GDP also grew less than expected.

Asian equities- Asian stocks fell after China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world’s second-largest economy.

Unrest in Hong Kong- Anti-government protesters in Hong King, paralysed parts of the city for a fourth day, forcing school closures and blocking highways and other transport links and creating further unrest.

Deterioration in Hong Kong this week will further support gold but what are even more impactful are the ongoing trade talks.

All the above mentioned influencers have been playing an active role in the movement of gold prices. In the long term, the backdrop is pretty conducive. With the global central banks being accommodative, gold will get its support.

In Prithviraj Kothari’s opinion all the above mentioned influencers have been playing an active role in the movement of gold prices. In the long term, the backdrop is pretty conducive. With the global central banks being accommodative, gold will get its support.