The desire for gold is the most universal and deeply rooted commercial instinct of the human race," said renowned Wall Street trader Gerald M. Loeb. In times of uncertainty, this instinct gets even more pronounced. Gold prices have continued their upward march and have now risen 18% so far this year, as fears of recession loom large.
In its latest survey of fund managers, Bank of America Merrill Lynch points out that the proportion of fund managersexpecting a global recession in the next 12 months was at its highest since 2011. Last week, the US yield curve inverted, setting the stage for the yellow metal to shine even brighter.
“The US yield curve is a key factor that seems to be driving the upmove in gold prices. This is something similar to what we saw during 2008-09," said Debajit Saha, senior precious metals analyst at Thomson Reuters GFMS in India. “Currently, the US yield curve is inverted and more easing by the central banks would make gold an attractive asset. An inverted yield is seen as a sign of recession, which means safe haven demand for gold should rise."
While a curve inversion is widely considered a warning that the US economy is headed for recession, some experts have argued this is debatable. Nevertheless, a look at the gold market suggests traders are seeking refuge in the precious metal.
“Despite the sharp rally that we have seen in global gold prices in the recent weeks, the sentiment towards gold remains positive—just look at the short positions in gold on the COMEX, they are at a multi-year low," says Saha.
“The recent gold price rise indicates investors are diversifying their assets fearing a global recession, although technically we aren’t there yet. The surge isn’t temporary and future price path will largely depend on policy action," says Sudheesh Nambiath, head of India Gold Policy Centre at the Indian Institute of Management, Ahmedabad.
Worries about the global economy have intensified because of the US-China trade war. “The escalation and de-escalation of US-China trade tensions and the move in US (real) interest rates have been the main drivers of gold prices in recent days and are likely to continue influencing the holdings of financial investors," said analysts at UBS AG in a 14 August note to clients.
Courtesy - Livemint