By Henry Sanderson and Neil Hume
Financial Times, London
Monday, January 15, 2019
If gold is anything to go by, investors are increasingly anxious about the state of the world.
Volatile equity markets and fears of a global economic slowdown have helped gold rally 10 per cent from its August lows, putting it among the best performing metals over that period.
It is a sharp contrast to much of the past two years, when rising US interest rates, a strong dollar, and buoyant equity markets hurt gold bugs and the shares of miners such as Barrick Gold, Newmont Mining and Goldcorp. And when there was a correction in US stocks in early 2018, the gold price failed to benefit.
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Almost a year on, the big question is whether 2019 could prove a profitable year to own gold, which is typically bought as hedge or haven by investors.
The amount of physical gold in exchange traded funds has risen to 71.9 million ounces, close to the record high of 72 million touched in May 2018.
"We haven’t seen flows like this since the first half of 2016, when the gold market really took off," says Joe Foster, a portfolio manager at VanEck in New York.
"There seems to be a change in sentiment and investor psychology. People are waking up to the fact that we are late in the economic cycle and we could be ending it in the next year or two. That brings more risk into the system. That's why gold is moving up." ...
Some investors believe rising concerns over US debt levels could sharpen gold’s allure, according to John Hathaway, a senior portfolio manager at Tocqueville Asset Management in New York.
Last week Fitch Ratings warned that a continued government shutdown in the US could lead to a credit downgrade on the country’s debt, which is rated AAA by the agency.
"The US is beginning to sport a debt-to-GDP ratio worthy of any banana republic," says Mr Hathaway. "We believe that exposure to gold is both timely and potentially rewarding."
Higher levels of debt will also make it hard for the Fed to raise rates and tighten monetary policy, adds Trey Reik, a senior portfolio manager at Sprott Asset Management in Connecticut.
"I do think the dollar is in the midst of a long-term weakening," he says. "You cannot raise rates with that much debt in the system without causing economic collapse."
The buying of gold by central banks is also at its highest level since 2015, as many authorities remain keen to diversify away from the dollar. ...
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