Market Uncertainty Its Impact On Gold Investments
Global markets are experiencing unprecedented uncertainty since the UK EU referendum in June 2016 which delivered the Brexit vote. Initial Bank of England forecasts of market pessimism have, as proved unfounded. However, with the unpopular election of U.S. President Donald Trump coupled with the triggering of Article 50 marking the start of Prime Minister Theresa May’s Brexit negotiations, there is still huge uncertainty in the worldwide stock markets.
Safe Harbour In Troubled Waters
It is against this backdrop that longterm investors are once again reconsidering gold as an investment to stabilise their portfolio and offer a shelter from market uncertainty. Gold has traditionally always been a solid investment precisely because it is just that, a tangible asset which can be trusted in the face of market uncertainty.
At times like these, investors traditionally turn to options which they can trust and gold is proven to hold and increase its value longterm. Gold offers a safe harbour from stormy markets. Despite the fears of low returns on gold, one major benefit is that gold retains its overall value and is not subject to the levels of volatility that other assets are.
Strength in Prices
Gold prices remained strong in the months following the Brexit vote, but fell towards the opening of 2017, however, in the weeks that followed, gold saw a gradual and steady rise signalling some uncertainty, as a result, of the triggering of Article 50 in February 2017. Investors should be aware that confidence in gold is largely sentiment driven which makes it difficult to discern how gold will perform in under pressure. One thing is clear, when investors feel unsure, they double-back on their investments and bolster their portfolio with precious metals.
As oil prices rise as has been the trend of late, inflation also rises and the markets also increase in value given their investment in black gold. UK unemployment is currently at an all-time low which augurs well for further economic growth and a possible rise in interest rates if inflation grows out of control. If interest rates were to rise, which at present is not looking likely under the steady hand of the Bank of England’s Mark Carney, the price of gold would certainly suffer. However, if inflation continues to rise meaning that the value of currency and what it can buy falls, the price of gold will also increase, since more investors will want to protect their portfolio from devaluation as a result of falling currency values.
Whilst UK markets were initially jittery following the EU referendum in June 2016, the UK economy has grown strongly in no small part helped by the weaker value of the pound against the Dollar and the Euro. Thus, growth has been driven by export demand from our largest trading partners in the EU and U.S. which has in turn highlighted growing inflation as sterling falls against the dollar and euro making imports more expensive.
Room for growth
Whilst some fund managers caution against using gold as a core investment, there is certainly plenty of room for growth. With the price of gold up 16% over 12 months the future for gold is currently looking golden, as is interest from longer term investors. Market volatility is set to remain for some time to come given Trump’s hitherto impulsive presidency and the fall out from Article 50 negotiations, so gold can still be seen as a safe haven for investments until markets enter calmer waters as we carve out a new equilibrium and new relationship with our European and global trading partners.