Investment Strategies

Focus On Gold As A Safe Haven

Amanda Cheesley Deputy Editor 10 November 2023

Focus On Gold As A Safe Haven

Investment managers share their insights on gold’s recent strong performance, and how it has been considered the ultimate safeguard for wealth, for generations.

Atlanta-headquartered investment manager Invesco this week highlighted how the gold price added 7.3 per cent in October as the month was rounded out by a flight to safety after the metal’s technically vulnerable start. 

Gold’s performance was all the more impressive given the yield on the US 10-year broke above 5 per cent during the month, and the dollar was trading higher, the firm said in a note. Gold ended October at $1,984, it’s highest finish to a month since April of this year. “This was a marked reversal from the sentiment at the end of September when an oversold signal was triggered due to the sharp selloff in gold,” Invesco said.

“Initially, the Hamas attack on Israel caused gold to rise due to concerns of higher oil prices putting downward pressure on real yields. Gold cemented itself as the most attractive “safe haven” in September; hitting new near-term highs in Swiss francs,” the firm continued. Central bank purchases rebounded in the third quarter with Poland announcing its intention to add to its gold reserves again over the coming months. Gold is also supported by upcoming Diwali celebrations, a religious festival, Invesco added.

Nevertheless, BullionVault, an online marketplace for gold, silver, platinum and palladium, believes that the current surge in global gold prices is likely to dent India's gold demand this Diwali. “While India has dropped to second place behind China among the world's biggest gold-buying households, its social, cultural and financial love for gold continues unabated, helping support the global market by seizing price drops as an opportunity to buy,” the firm said in a note.

“Indian households' deep affection for gold continues to be reciprocated, because the precious metal has delivered consistent gains in Rupee terms, rising in 15 of the last 20 Diwalis from 12 months before. Gold has also risen when other assets have dropped,” the firm added.

Middle East conflict
Year-to-date gold is ahead 8.8 per cent. “Tensions in the Middle East also come with the anticipation of higher oil prices feeding into inflation expectations, pushing nominal yields higher too and further crystalizing gold’s position as the better “safe haven” asset,” Invesco said.

Stagflation fears in the US
Gold also broke its traditional relationship with dollar strength, as both traded higher on the month with the US dollar adding 0.5 per cent. Dollar weakness could be put in motion with lower Treasury yields, the firm added. “The quick increase in yield has put some investors on edge which has directly benefitted gold, but a less attractive yield outlook would put gold at a relative advantage,” Invesco said.

Spotlight on golds benefits
Sharps Pixley, a London supplier of gold bullion and investment services, also sees many benefits in holding gold, and highlighted why it should be the next best investment for an investor's portfolio.

“Unlike other forms of investment, gold is a good hedge against systemic risks; this is because its value is intrinsic and is not reliant on a promise to pay. While economic downturns and geopolitical instability may send the value of stocks and bonds plummeting, gold thrives during uncertainty, earning itself a reputation as a safe haven asset,” Sharps Pixley said in a note this week. 

“Even cryptocurrency, previously thought to be immune to market slumps, has taken a recent nosedive. In our increasingly digital world, gold is a real asset you can see and touch, its value shining in your hand,” the firm continued.

“Another benefit of owning gold is the safe haven it offers during deflation. Unlike paper currency which can suffer from purchasing power fluctuations, gold cannot be devalued at will and therefore owning gold is a way to lock in purchasing power,” the firm added. It is also a good hedge against inflation, in periods like this.

Moreover, gold is a scarce and finite commodity, Sharps Pixley said. “The world’s central banks own the largest gold reserves and they are accumulating more at a rate not seen for over 50 years. A recent survey by the World Gold Council reveals that a staggering 71 per cent of global banks plan to beef up their gold holdings in the coming year,” the firm added. 

Wrapping up, Sharps Pixley said gold not only diversifies a portfolio but also acts as a protective bulwark against inflation and a safe harbor during deflationary periods and times of geopolitical turmoil, much like the current global climate. “Furthermore, worldwide demand makes gold easily bought and sold. While other types of investments may thrive under economic certainty, gold is here to weather the storm of the good and the bad times,” the firm said.

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