Amid Global Turmoil, is Gold Still a Safe-Haven?
ADVERTISEMENT
The Assay - Mining investment news, insights and company profiles
Mining investment news, insights and company profiles
No Result
View All Result
Subscribe
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
The Assay - Mining investment news, insights and company profiles
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
No Result
View All Result
Subscribe
The Assay - Mining investment news, insights and company profiles
No Result
View All Result
Home Gold

Amid Global Turmoil, is Gold Still a Safe-Haven?

By Angelos Damaskos, Manager, Junior Gold Fund

byThe Assay
4 years ago
Reading Time: 3 mins read
Amid Global Turmoil, is Gold Still a Safe-Haven?

The last quarter of 2018 proved to be tumultuous for just about every asset class traded on an exchange. An explosion of volatility and violent moves in global equity indices instilled fear to all investors and caught many hedge funds and professional traders on the wrong side. The reasons for this kind of unpredictable behaviour are being attributed mainly to worries over Chinese economic growth and by extension to its impact on the world, as well as trade disputes initiated by US President Trump. A change  rhetoric by the US Federal Reserve about the trajectory of interest rates also confirmed worries over the level of global debt and the massive fiscal deficits that prevail in the developed economies.

In times of short-term instability, it can be useful to take a step back and think of the longer-term context. The facts point to global debt-to-GDP ratio reaching over 320% in 2018 as emerging economies, in particular, more than doubled their debt levels since the Global Financial Crisis (GFC) of 2008. Any corporate entity would be under enormous pressure to reduce that kind of leverage especially when its growth appeared to be slowing and profit margins were squeezed.

The massive liquidity injections by central banks around the world in response to the risk of financial melt-down after 2008 promoted not only the massive accumulation of debt but the rapid inflation of asset values as too much cash was chasing higher returns in an environment of low interest rates. Debt was, to a large extent, transferred from private hands, primarily banks, to state control. The credit risk of states is perceived to be much lower simply because a state can print money and control the monetary base far longer than any private entity with limited capital. The central bankers’ strategy seemed to work over the next decade, albeit at a slower pace of growth than anticipated. When they realized, ultimately, that this kind of leverage could back-fire and cause several bubbles to burst, they started to unwind and pull-back liquidity. Emerging markets felt the strain immediately and the biggest of them all, China, got worried.

Gold, the traditional safe-haven asset, had seen its price race up to $1,927 per ounce in 2011, as investors were terrified by the central banks’ experiment and sought safe-havens in the aftermath of the GFC. Since that high in 2011, however, it seemed that everyone thought that the global economy was on a steady track of growth out of the debt problem. It took another seven years to realize all is not well. America’s deficit has ballooned and President Trump’s tax cuts are making it worse. Populism has risen across the US and Europe, causing unexpected moves such as Brexit and instability in Italy and France, two of the largest economies in the Eurozone. Most economists would agree that the massive accumulation of debt by state institutions cannot carry on forever, not without serious repercussions on the economy. Most importantly, private sector debt is very sensitive to changes in interest rates and exchange rate parities. Any attempt to unwind indebtedness by either state or private parties is set to cause an increase in volatility in those asset classes that are funded with leverage.

As markets went into a tail-spin in the last quarter of 2018, gold started to regain strength testing the psychologically important level of US$1,300 per ounce. According to the data published by the World Gold Council, gold-backed ETFs increased their holdings in each month of the last quarter. Furthermore, the central banks of China, Russia, Hungary and Poland were big buyers of bullion in an apparent move to diversify their reserves out of volatile currencies. Weakness in economic growth would be the catalyst for further correction in equity valuations as earnings expectations decline, and bonds would not offer any shelter as higher interest rate expectations keep their values in check. The safe-haven attribute of gold is coming back in investors’ minds and, as global allocations in gold are very low, the rebalancing can push its price to new highs.

As the chart plotting the price of gold compared to the size of US debt demonstrates, the historical correlation of the two was broken in 2011 as investors were lulled into a false-sense of security by the actions of central banks and favoured risky assets to gold. Reversion to the mean points not only to the unsustainable level of state debt, but also to the potential appreciation in the value of gold. A rising gold price would also cause shares of gold miners to rerate as their earnings prospects would increase rapidly. Those of smaller miners would rise even faster due to their higher operational exposure. I believe that any well thought-through portfolio should have a meaningful allocation to gold and gold mining equities in today’s environment.

Amid Global Turmoil, is Gold Still a Safe-Haven?

Tags: Gold
TweetShareSend
Previous Post

Presentation: Afritin Mining

Next Post

Australian Research Independent Investment Research – Galan Lithium (ASX: GLN)

Related Posts

Osino Receives Multiple Project Finance Offers for Namibian Gold Development
News

Osino Receives Multiple Project Finance Offers for Namibian Gold Development

byColin Sandell-Hay, Contributor - The Assay
4 February, 2023
Snowline Gold Intersects Wide Zone of Shallow Mineralization in Yukon
News

Snowline Gold Intersects Wide Zone of Shallow Mineralization in Yukon

byColin Sandell-Hay, Contributor - The Assay
4 February, 2023
Siren Gold to Raise A$2.6m to Fund Exciting NZ Exploration Opportunities
News

Siren Gold to Raise A$2.6M to Fund Exciting NZ Exploration Opportunities

byColin Sandell-Hay, Contributor - The Assay
3 February, 2023
Felix Discovers Deeper Gold and Prospective Feeder Zones at Treasure Creek
News

Felix Discovers Deeper Gold and Prospective Feeder Zones at Treasure Creek

byColin Sandell-Hay, Contributor - The Assay
3 February, 2023
Kefi Gold and Copper Provides Q4 2022 Operational Update
News

Kefi Gold and Copper Provides Q4 2022 Operational Update

byColin Sandell-Hay, Contributor - The Assay
2 February, 2023
Lahontan Gold Begins Metallurigcal Testing at Sante Fe Mine
News

Lahontan Gold Begins Metallurgical Testing at Sante Fe Mine

byKatie Gordon, Business Reporter - The Assay
2 February, 2023
Next Post
Australian Research Independent Investment Research – Galan Lithium (ASX: GLN)

Australian Research Independent Investment Research – Galan Lithium (ASX: GLN)

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

ADVERTISEMENT

Popular Articles

  • Bolivia Maintains it Historic Profile as a Global Silver Centre

    Bolivia Maintains Its Historic Profile as a Global Silver Centre

    0 shares
    Share 0 Tweet 0
  • The Rise and Rise of Indonesian HPAL – But Can It Continue?

    0 shares
    Share 0 Tweet 0
  • The Assay Guide to Palladium vs Platinum

    0 shares
    Share 0 Tweet 0
  • Zinc Mining & Market Outlook 2022-2025

    0 shares
    Share 0 Tweet 0
  • Japan Entering a Golden Age of Exploration

    0 shares
    Share 0 Tweet 0
  • Home
  • News
  • Articles
  • Investor Discussions
  • CEO Interviews
  • Company Profiles
  • Newsletter
  • Magazine
  • About Us
  • Our Team
  • Contact Us
Hyve logo

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

No Result
View All Result
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

Go to mobile version