Classical investment theory is based on buying shares of companies that leverage human potential best and use this advantage to deliver superior returns. Amazon, Facebook and Google continue to prove that point. But sometimes even the dumbest of inanimate objects beats the more obvious opportunities – as gold has been doing this year. Up by a quarter in US Dollars since January, the yellow metal’s price broke above $1 350 an ounce over the weekend as its insurance attributes continue to find new converts. Gold does best when it is perceived as a safe place to stash cash during troubled times. And right now, with angry citizens around the world dumping on the political establishment and no clear economic end game for Quantitative Easing, nerves are certainly jangling. Bullion’s price got above $1 800 an ounce in 2011. Gold bulls reckon is heading back there, and are backing the view by piling into gold-linked exchange traded funds faster than at any point in the past three years. – Alec Hogg Â
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(Bloomberg) — Global gold holdings have expanded by more than 500 metric tons since bottoming in January in a signal of investors’ rising concern about slowing growth, a Federal Reserve that’s probably on hold and the ructions caused by Britain’s vote to quit the European Union.
Assets in bullion-backed exchange-traded funds rose 6.6 tons to 1,959.1 tons on Friday, up from 1,458.1 tons on Jan. 6, according to data compiled by Bloomberg. The holdings increased 37 tons last week as investors reacted to the U.K.’s vote, and swelled in five months out of six in the first half.
Bullion prices climbed to the highest level in more than two years in June as investors absorbed the implications of the U.K. result, adding to a rally that’s been driven by the Fed’s hesitation in raising borrowing costs and the spread of negative rates in Europe and Japan. Banks including Goldman Sachs Group Inc. raised their outlooks for gold after the vote, while yields on 10- and 30-year U.S. Treasuries have touched record lows.
#Gold just took out the #Brexit highs, trading up $15.00 at $1,356.90!
— Peter Schiff (@PeterSchiff) July 4, 2016
“The low-yield environment globally, and increased volatility in the financial markets as a result of a number of key geopolitical developments, have increased the appeal of gold as an investment and safe-haven asset respectively,” said Vyanne Lai, an economist at National Australia Bank Ltd. The push-back in the markets’ expectations for the timeline of further U.S. rate hikes suggests further upward potential for prices, she said.
Gold Rallies
Gold for immediate delivery traded 0.8 percent higher at $1,351.60 an ounce at 1:55 p.m. in Singapore, up 27 percent this year, according to Bloomberg generic pricing. It rallied to $1,358.54 on June 24, the highest level since March 2014. Spot silver has also jumped.
Gold holdings in ETFs, which peaked at 2,632.5 tons in 2012 as central banks ramped up stimulus to resuscitate growth after the global financial crisis, have now rebounded to the highest since August 2013. ETFs trade like shares, and allow investors to buy and sell bullion without taking physical delivery.
Goldman raised its three-, six and 12-month bullion targets by $100 an ounce last month, citing a flight to safety by investors, while Singapore-based Oversea-Chinese Banking Corp. has flagged the potential for bullion at $1,400. Gold will probably extend gains as Britain’s vote adds to the case for the Fed pausing, according to hedge-fund startup Academia Capital LLC.
The investors who shorted sterling, bought gold and made a mint from #Brexit https://t.co/lPvVwIhS28 pic.twitter.com/zj2o01A299
— The Economist (@EconBizFin) July 3, 2016
Fischer’s View
Fed Vice Chairman Stanley Fischer last week made a strong case for policy makers to do nothing at their July meeting, according to comments to CNBC. Futures wagers tracked by Bloomberg show investors see no chance of a raise this month, and only 12 percent odds of an increase by December.
The rally in gold has aided producers’ shares. Evolution Mining Ltd. Executive Chairman Jake Klein told Bloomberg last week that gold may stand at the start of a major bull market. Evolution’s Sydney-listed stock rallied as much as 8.9 percent on Monday following an 11 percent jump on Friday.
“Brexit has created all sorts of fear and loathing across markets,” Commonwealth Bank of Australia said in a note on July 4, adding that investors are cutting back on risk. “Gold and silver, as we would expect, benefit the most from safe-haven demand flows.”
