On 8 October the price of gold rose above $4,000 a troy ounce for the first time, extending a rally that has sent prices up by more than 50% so far this year.
The acceleration in the rise in the price of gold has occurred against a backdrop of geopolitical and economic uncertainty whose characteristics may be those of a new paradigm.
The word “geonomics” is being used employed by some economists to describe an environment in which economic instruments (e.g. tariffs, regulations, currency devaluation, controls of the export of certain commodities and rare minerals) are employed to promote and defend national interests. It may be that some investors see gold as an asset that could retain its value in this environment.
Demand for gold from institutional investors has risen. According to the World Gold Council, central banks have accumulated over 1,000 tonnes of gold in each of the last three years, up significantly from the 400-500t average over the preceding decade. Such buying may in part be motivated by an objective of diversification out of the US dollar. The Trump administration has alluded to a policy objective of weakening the US dollar.
Apart from the potential impact of geonomics, in a rally as strong as this, psychology plays an important role. Some investors are drawn in simply by FOMO, the “fear of missing out.” Others may be fearful of the risk of the debasement by fiscally imprudent governments of fiat currencies and government debt.
Gold is seen as a refuge asset and an ultimate store of wealth. Our multi-asset team retain a positive bias to precious metals.
