Instability in global economies and the state of geopolitics have caused gold’s prices to surge, while the resulting behavior lowered interest rates. Global powers shift, as alliances form and are broken, and as uncertainties loom over the horizon.
The world’s top economies are suffering from setbacks, with the US and China still on the wake of a trade war (currently punctuated by a truce) and the EU still in a stage of lethargy. Manufacturing sectors across both the Europe and Asia have been showing disappointing numbers, and the Brexit saga still places the UK at an uncertain point in history.
Despite all the bad news, gold is still thriving. In fact, Q2 and Q3 figures this year show remarkable numbers, with charts hitting figures that haven’t been seen for the past several years. In fact, all the tensions springing up from different fronts contributed to an increasing trend among central banks to ease their monetary policies as a means of stimulating the economy. Among these are big players such as the Federal Reserve, the European Central Bank, and the Reserve Bank of Australia. Gold is once again shining as a safe haven asset, neck-and-neck with the Yen.
We are conditioned to looking at economic growth as a driver for the gold market, with more people buying gold products as their buying power increases. However, uncertainty is also among the stronger drivers of gold growth, thanks to its inherent value and its place as a safe haven. This 2019, this factor is paired with the lowered opportunity cost for gold, due to the recent and rapid growth of negative-yielding bonds.
The idea of negative interest rates, currently being implemented by such countries as Denmark, Switzerland, Japan, and even the European Central Bank itself has helped usher in more demand for gold.
In this setup, people are charged on bank deposits, and banks are in turn charged by the central bank. This stimulates cash flow (albeit artificially), but it also causes serious concern about the ability of central banks to manage the whole issue of financial control. This makes gold, an asset with no counterparty risk, even more enticing to investors. This tendency makes a grand display in September’s record-high numbers in terms of gold-backed ETF holdings. The numbers are strong enough that they shook off the slowdown in the gold market in some key countries.
In the international scale, foreign government debt has lost its luster, and its conceivable string of high inflation rates and currency depreciation can be seen in the near future. Hence, gold becomes more attractive as an investment. The market could even find better support from a decrease in the yields of treasuries around the world, especially amidst growth fears.
On the grand scale, gold seems to be continuing its bullish run. A glance at the charts points to higher rates for both high and low levels. This is good news for anyone who’s in on the gold game — though admittedly it would be much sweeter if the gold rush isn’t based on cracks appearing in the world’s economic and political arenas.