For the longest time, gold has been seen as a safe haven. Investors actively seek gold for security and protection during times of uncertainty. As Market Intelligence Director Alistair Hewitt mentioned in an interview recently, historically, gold enjoys certain perks in times of heightened risk due to flight-to-quality inflows.
By minimizing portfolio losses and providing positive returns, the precious metal has been particularly effective at times when systemic crises happen. These are the times when investors prefer to stay away from stocks.
This was proven true last week when recent events that affected the whole world pushed the US$ gold price to its highest level in seven years.
The latest escalation of tension brought about by the friction between the US and Iran sparked a new wave of gold investments in the UK. A statement released by the Royal Mint pointed to the eruption of violence and heightened hostility between the Islamic Republic of Iran and the United States as the culprit. There was a 573% hike in sales revenue coming from a 416% rise in average order value at the Royal Mint’s Bullion Division.
Consumer research has confirmed that this phenomenon is not an isolated case that happens only in the UK. 12,000 global retail gold investors ranging from North America to as far as China, via Germany, Russia, and India, revealed that as much as 44% of all investors who purchased gold within the last 12-month period did so as a response to the risk factors.
And obviously, gold was the top pick for investment product to manage apparent risk. The precious metal is more preferred over even government bonds that are generally considered as stable.
This is reflected on the role retail investors think gold plays in stabilizing their respective portfolios. 30% of all global retail investors with gold as part of their investments, say that the reason they make sure that they have gold is to protect and secure their wealth.
In a report recently released by the World Gold Council, it was pointed out that risk aversion was among the key drivers of inflows into the global EFTs backed by gold for 2019. It accounted for a 400-ton increase in gold product holdings over the past year.
It is interesting to note that there are similar traits that drive the behavior of gold jewelry products. Gold helps in two ways. First, its inherent value shows that gold jewelry-buying consumers view the purchase through another investment lens.
Out of the 6,000 or so jewelry consumers who participated in the research study, 65% revealed that they have more faith in gold compared to any currency in the world. Almost the same percentage said that gold provides the feeling of assurance over the long term.
Although the US-IRI crisis seems to be dying down a bit, tensions have remained high. This can possibly continue to push gold investment. This is one instance that clearly demonstrates how geopolitical and financial uncertainty is a potential key driver of the demand for gold in 2020.
Coupled with a low-rate environment, as well as continued vigorous buying by central banks, you can expect investors to continue valuing gold’s safe-haven traits in the coming year.