Why has gold come back on the radar? As Europe struggles – particularly after last week’s French and Greek elections, and fresh concerns about Spain – so risk aversion comes back into play with markets pulling back and safe havens sought.
However, gold prices – influenced by more than just speculators – have actually fallen to a four-month low. Today, spot gold is currently around the $1,580 an ounce mark, which will only alert more investors to look for a buying opportunity.
As the latest research from Lyxor reveals, investors poured €1.4bn (£1.13bn) into commodity ETPs in the first quarter of this year, 80% of which was in precious metals. Elsewhere, specialist provider ETF Securities last week reported that its gold ETCs saw their largest inflows for almost two months citing renewed confidence in low US rates and rising sovereign risk in Europe.
Unwanted correlation
However, not everyone is so keen, including John Ventre, manager of Skandia’s Spectrum and multi-asset funds, who observes an unwanted correlation that brings into question gold’s status as a portfolio hedge.
“So far this year, the metal strengthened for the first two months of the year, alongside risk assets and has weakened for the last two months of the year, also alongside risk assets,” he says.
“So why has the correlation gone up? I think this is an example of our old friend ‘the crowded trade’ rearing its head. Very many investors now own the asset, even though the market is in fact incredibly small – all the Gold in the world can be moulded into 68x68x68ft cube. As investors – particularly levered ones like hedge funds – take losses in other parts of their portfolio, then selling pressure emerges across the board as investors pull their horns in.”
Is there any other asset that divides opinion with the same fervour as gold? Possibly not, though while as long as the global economy continues to struggle, so will this precious metal dominate investment discussion.
