27/08/2019 - Funds: DJE - Gold & Ressourcen
Stefan Breintner, Fund Manager of DJE- Gold & Ressourcen
Trade conflict, Brexit, expansive monetary policy, falling bond yields - gold is in demand and is currently floating around the USD 1,500 an ounce mark. The precious metal is thus as valuable as it was last in spring 2013. Will the high point continue? Stefan Breintner, Fund Manager of DJE - Gold & Ressourcen, comments.
Gold is around the $1,500 mark. This is the highest price for the precious metal since 2013. What are the reasons for the strength gold is currently showing?
The most important reasons are the increased expectations of interest rate cuts and falling bond yields: Gold ETFs have recently had stronger inflows again mainly as a result of this development. Because of the declining bond yields, real interest rates in the most important economic regions are either already negative or declining. Falling or negative real interest rates are generally very positive for gold and tangible assets.
which factor has the strongest influence in your opinion?
In my opinion, the US real interest rate is the most important factor influencing the gold price, followed by the central banks. In 2019 and probably beyond, they will remain an important pillar. The World Gold Council, the lobby association of the gold mining industry, expects the central banks to buy about 500 to 600 tonnes of gold this year. In addition, the supply of gold from current mine production will peak this year and may fall structurally in the coming years.
Low interest rates, a weakening US dollar, trade tensions and geopolitical tensions in the Persian Gulf: Is gold only strong in a climate of uncertainty?
In a climate of uncertainty gold is usually more in demand than in a very friendly economic environment. But the real interest rate environment is always more important. If it is declining or negative, this is generally good for gold investments.
Will this strength continue in the coming months? What are the fundamental reasons for this?
In my view, there are a number of reasons why gold will continue to be in demand, especially the sharp rise in the price of very long-term bonds, such as the doubling of the price of the 100-year Austrian bond or the international race for currency devaluation. In addition, central banks are expected to lower interest rates. These are primarily attributable to the intensification of the trade conflict between the USA and China that makes market participants more cautious. Combined the measures taken by US President Donald Trump, the US Federal Reserve and China's government are also likely to keep the price of gold high for longer.
The more uncertain the situation the more attractive gold becomes?
The growing economic uncertainty - keyword trading conflict, keyword Brexit - is an important factor for investors. Fears of a global recession are growing, and this puts the status of gold as a safe haven back into the focus of investors. The European Central Bank's probably still very expansionary monetary policy also tends to favour gold.
Is it too late for investors to hedge their portfolio with gold now given the rise in prices?
No, in my opinion it's not too late for that: Gold passed the 1,500 US dollar per troy ounce mark at the beginning of August for the first time since the big sell-off in April 2013. However, investors worldwide have so far hardly invested in gold. It is estimated that only 1-2% of global assets are invested in gold. Many investors have reduced their gold holdings sharply since 2011 due to the numerous price disappointments.
Which factors could currently slow down the gold price?
A quick and clear settlement of the trade dispute between the US and China would certainly reduce market concerns. Improved economic prospects would in turn result in rising bond yields, which could be strong. An environment of rising real interest rates would slow the price of gold, as would expectations of rising interest rates. In addition, it would have a negative impact on the gold price if central banks were to sell parts of their gold holdings or if they were to switch to quantitative tightening, i.e. selling bonds.
For which type of investor is the precious metal particularly suitable as an investment alternative?
Gold is basically suitable for all types of investors although physical gold holdings are better suited to risk-averse investors than gold mining stocks. The precious metal is largely uncorrelated to other asset classes and remains a protection against many incalculable risks of the financial system.
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