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Gold prices boosted by “perfect storm” industry body says

The World Gold Council sees a “perfect storm” of failing monetary policy and economic uncertainty post-Brexit.

gold bar on dollars
Gold's role in asset allocation is increasing.

Is the face of investing changing slightly? Well, according to the World Gold Council it might be.

In its latest analysis, the trade body cites a “perfect storm” of failing monetary policy and economic uncertainty post-Brexit for a 29% rise in the price of gold since the start of the year.

That speaks to gold’s haven status in times of turmoil.

However the Council then goes on to make a subtler point around the asset allocation in investment portfolios – and gold’s role in the mix.

Sovereign debt tends to cornerstone the holdings of the big money managers as it acts as a hedge against the riskier investments such as equities.

But there’s a problem.

Today US$10trln of these sought-after bonds are now trading at a negative yield, while a further US$9trln are off limits, having been vacuumed up in central bank asset purchase schemes.

So, according to the Council’s research, gold is taking the place of government debt in some portfolios.

Of course rather than hold physical gold, the large institutions (along with private investors) acquire units in exchange trade funds (ETFs).

The World Gold Council said there has been a record inflow of 630 tonnes of gold to these ETFs in the year to date.

That said, the collective global holdings of these gold-backed funds is still 25% below the highs of 2012 when he metal was trading at just over US$1,900 an ounce.

While the analysts aren’t predicting the price will breach that figure anytime soon, they are upgrading their end of year targets.

UBS is still being a little cautious, one suspects, on US$1,400 (with the current price holding above US$1,360).  Bank of America Merrill Lynch and Credit Suisse, at US$1,500, look nearer the money.

Outside the demand created by the world’s large asset managers, gold is still sensitive to the ups and downs of the world economy in its more traditional role as a safe haven investment in times of turmoil.

With the outlook becoming murkier, we could see a repeat of Tuesday’s sharp that betrayed a panoply of worries but was prompted by the tepid response to a Japanese government bond auction. 

So what next? Well don’t look to the latest Gold Council note for predictions. However one suspects the “perfect storm” it describes will continue to rage for quite a while longer.

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