Are you feeling lucky?
The second question, as to whether or not investors should be considering gold is perhaps a more interesting one, but it is definitely a more nuanced one – one that centres around how the metal is perceived.
Adrian Ash, head of research at BullionVault points out that “China buys gold, prices fall” is not the headline that gold bulls have been expecting, but it is an indication that gold prices continue to be driven by sentiment and, at present, Western investor sentiment remains negative toward gold.
Asked about the metal’s lack of movement during the ratcheting up of tensions about Greece over the past few weeks, Ash said, these aren’t really the sorts of crises that gold bulls have been looking for.
“Investor sentiment toward gold is a function of sentiment toward other asset classes and a view on confidence in central banks.” Ash said.
As Pictet Wealth Management’s chief strategist, Christophe Donay, explained it: “Downwards pressure on gold is mainly the result of higher risk appetite, following the deal by eurozone leaders on Greece last week. As fears about Grexit have dissipated, markets have switched their focus back to fundamentals, which are broadly supportive. This has buoyed stocks and weigh on safe-haven assets like gold. Clearer signs from the Fed last week that a US interest-rate rise will come before the end of 2015 were also bearish for gold.”
This notion, that gold has come to be seen as an insurance policy against central bank policy error, is one explored thoroughly by Salient Partners’ Ben Hunt, and explains why gold didn’t move upwards in the past few weeks – central banks have managed, along with the EU, to kick the Greek debt can even farther down the road and, if anything Janet Yellen and Mark Carney continue to guide markets on exactly when rates are going to rise.
That is not to suggest that the margin for policy error had diminished, if anything it continues to grow the longer the liquidity taps run, but, as Ash explains it, it is only when real money gets involved once more, will gold begin to move.
“Gold remains a form of financial insurance, but like any insurance policy there is a premium attached – in the case of gold it is underperformance when other assets are moving higher.”
Thus, the real question for investors is, does the current market warrant some form of insurance and, if so, how much are you willing to pay for it?
