Gold: The key trends

November 8, 2016 at 16:06

truthing

Gold has long thrived on bouts of uncertainty and right now markets have uncertainty in spades. The Brexit vote in Britain, the prospect of Donald Trump as US president and a raft of elections due in Europe next year have all pushed investors to ramp up their holdings of the precious metal.

That strong demand for gold – seen as a safe haven in troubled times – has sent its price soaring on world markets this year. But while big investors like pension funds stock up, individuals who fancy their own little pot of gold for a rainy day have been priced out of the market.

Investment demand for gold was up 44% in the third quarter on a year earlier, dominated by demand from European funds. That was a bright spot in an otherwise weak quarter for gold. Demand was down 10% overall from a year ago, as the growth in investor demand failed to offset a drop in appetite for gold among central banks, the jewellery sector and technology companies that use gold in electronics.

The solid demand among institutional investors such as pension funds and insurers builds on a strong first half to 2016. For the year to date, demand from investors is up 98%, according to the World Gold Council, a lobby group for the gold industry.

As polls tightened between Donald Trump and Hillary Clinton ahead of Tuesday’s US presidential election, the gold price rose. But Alistair Hewitt, head of market intelligence at the World Gold Council, says the demand for the precious metal goes beyond worries about a political upset in the US.

“Focus this week is going to be centred around the US election but it’s bigger than that,” he says.

Uncertainty rose on the back of the vote for Brexit, and with it activity in the gold market, Hewitt adds. Now investors are worrying about a series of elections in Europe next year with the Dutch, French and Germans going to the polls, and possibly the Italians too.

“Given what we have seen in the UK referendum and what we’ve seen in the US election, there is huge uncertainty about what the outcome of these [European elections] is going to be,” says Hewitt.

“One thing that is completely clear to us and certainly to institutional investors is that gone are the days of the predictable status quo.”