The price of gold continued to surge this week at $US 4,300 an ounce, then fell 7 per cent on overseas markets on Wednesday morning.
In a recent newsletter, I explained that the price of gold tends to rise during times of political and economic uncertainty, as investors turn to it as a safe store of value. I also cautioned that at current levels, gold could be volatile – and that seeing queues of investors outside bullion dealers might be a sign the market is nearing its peak.
A safe haven
The flight to safety is understandable as the often-erratic behaviour of President Trump can spook markets. But I thought the following charts also add more explanation.
Exchange Traded Funds (ETFs) are now enormously popular with investors and they offer a range of opportunities to invest in listed gold miners, gold futures and actual physical gold. Because they are a managed fund type of investment, they have low administration fees and are convenient.
Take a look at the huge amount of money in the first chart below that’s been invested in gold through managed accounts over the past month, compared with the last ten years. It’s all adding to demand for gold and driving price momentum.
What does China know?
Last week I also discussed that central banks were buying up big when it comes to gold to underpin their national reserves. But have a look at China in the below chart. Its gold stock levels have had an unprecedented surge to extraordinary levels.
The rise in Chinese gold holdings has been so dramatic that financial markets are asking what they might know that the rest of us don’t. You could be forgiven for suspecting that China is preparing for some sort of global financial crisis …
Silver’s surge
While all the attention has been on gold, its less glamorous sibling – silver – has also been quietly surging in value, too.
Silver prices have risen over 60 per cent since the beginning of the year, reaching a record high of US $54.30 per ounce earlier this month.
The levels have not seen since the infamous Hunt Brothers tried to corner and manipulate the silver market in 1980, and also during the GFC in 2011.
A golden horoscope?
As investors turn to precious metals to protect their money, financial analysts start making predictions about the future economy.
And if history has taught us anything, it’s that when the gold bugs are swarming in numbers – as they are now – and the shiny commodity skyrockets in value – as it is now – something is coming to shake up the economy.
Does China know what this is? Maybe, or maybe Trump’s volatility just makes us all a little nervous and so we put our money where it’s safe.
But like the uncertainty that fuels the value of gold, no one really knows.
