{"id":54005,"date":"2023-09-25T12:57:00","date_gmt":"2023-09-25T12:57:00","guid":{"rendered":"https:\/\/www.africa-press.net\/south-africa\/?p=54005"},"modified":"2023-09-25T12:29:50","modified_gmt":"2023-09-25T12:29:50","slug":"gold-investing-the-rulebook-has-been-thrown-out","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/south-africa\/all-news\/gold-investing-the-rulebook-has-been-thrown-out","title":{"rendered":"Gold investing: The rulebook has been thrown out"},"content":{"rendered":"

Africa-Press – South-Africa. <\/strong><\/span>What determines the price of gold? For much of the past decade the answer was easy: the price of money. The lower rates fell, the higher gold climbed, and vice versa.Gold is the quintessential \u201canti-dollar\u201d \u2014 a place to turn for those who distrust fiat currency \u2014 so it seemed natural that prices would rise in a world of low real interest rates and cheap dollars. Or when rates went up, gold, which pays no yield, naturally became less attractive, sending prices tumbling.<\/p>\n

Well, not anymore.<\/p>\n

As inflation-adjusted rates soared this year to the highest since the financial crisis, bullion has barely blinked. Real yields \u2014 measured by the 10-year Treasury inflation-protected securities, or TIPS, \u2014 jumped again on Thursday to the highest since 2009, while spot gold nudged down a mere 0.5% the same day. The last time real rates were this high, gold was about half the price.<\/p>\n

The unraveling of the relationship between gold and real interest rates could be a paradigm shift for the precious metal, leaving investors struggling to calculate its \u201cfair value\u201d in a world where the old equations don\u2019t seem to apply. It\u2019s also raising questions about if and when the old dynamic might reassert itself \u2013 or whether it already has, just from a new base.<\/p>\n

So what\u2019s holding prices up?<\/p>\n

Analysts point to a combination of voracious central bank buying \u2013 led by China \u2013 and investors that are still betting a US economic slowdown will be good for gold, even when the regular playbook says it\u2019s time to sell.<\/p>\n

\u201cOur models told us it\u2019s $200 too expensive,\u201d said Marco Hochst, a portfolio manager at Berenberg. Yet the firm\u2019s 319 million euro (R6.4 billion) multi asset balanced fund which he helps manage is still holding about 7% of its assets in gold. \u201cIn our view the future looks much more attractive for gold.\u201d<\/p>\n

There are various different models or calculations to assess the fair value of gold \u2014 many analysts create their own \u2014 but at their essence most reflect the basic principles of where bullion is trading compared with real US bond yields and the dollar. Normally money managers would sell the haven metal as the dollar strengthens and the interest paid by other safe assets like bonds and cash rises.<\/p>\n

But they haven\u2019t done so on the scale that would be expected, creating the large \u201cpremium\u201d to where the models say it should be trading.<\/p>\n

\u201cI get no yield on gold, but I can get yield on cash. Where am I going to go?\u201d said Anthony Saglimbene, chief market strategist at Ameriprise Financial Inc. \u201cIn that respect, I\u2019m surprised at how resilient gold has been.\u201d<\/p>\n

The \u201cpremium\u201d has endured for over a year, as a record gold-buying binge by central banks helped the metal withstand monetary policy tightening globally.<\/p>\n

There are some initial signs that sovereign demand is starting to slow, making gold more vulnerable to downturns. Crucial to the outlook will be if institutional investors decide to sell up if prices test new lows.<\/p>\n

However, some analysts argue that rather than breaking down entirely, gold\u2019s relationship with its key drivers has simply been reset at a higher base.<\/p>\n

That could allow it to set a record if yields or the dollar drop again, according to Macquarie\u2019s Marcus Garvey, who sees prices rising to $2 100 an ounce next year as the US economy slows.<\/p>\n

\u201cThere has been a level break higher in the nominal gold price,\u201d Garvey said. \u201cOnce you get the financial flows as a tailwind, I think it makes a decent push higher.\u201d<\/p>\n

A litmus test may have been the turmoil that engulfed the US financial sector in March. Real yields and the dollar fell as Silicon Valley Bank teetered on the brink, triggering fresh inflows into gold-backed exchange traded funds.<\/p>\n

Despite already trading at a lofty premium, the metal rallied to within touching distance of the record it set during the pandemic, but eventually slumped as the crisis eased and investors sold into the higher prices.<\/p>\n

But others are more skeptical of a repeat, particularly with the threat of a banking crisis having retreated and bonds offering meaningful yields for the first time in years. With gold looking relatively expensive, it might struggle to attract meaningful flows even in a US slowdown.<\/p>\n

\u201cThere are other assets such as long term bonds that can be used in the portfolio for the same purpose as gold, but come with carry,\u201d said Marco Piersimoni, co-manager of the 6.2 billion-euro Pictet Multi Asset Global Opportunities fund, who has halved his allocation to the precious metal in the past 12 months.<\/p>\n

\u201cIn the current environment gold is not a very convincing diversification asset.\u201d<\/p>\n

For More News And Analysis About South-Africa<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – South-Africa. What determines the price of gold? For much of the past decade the answer was easy: the price of money. The lower rates fell, the higher gold climbed, and vice versa.Gold is the quintessential \u201canti-dollar\u201d \u2014 a place to turn for those who distrust fiat currency \u2014 so it seemed natural that […]<\/p>\n","protected":false},"author":84,"featured_media":54004,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5],"tags":[274,315,1996,1907,2022,275],"class_list":["post-54005","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","tag-africa-press","tag-africa-press-south-africa","tag-gold","tag-investing","tag-markets","tag-south-africa-2"],"yoast_head":"\nGold investing: The rulebook has been thrown out - South Africa<\/title>\n<meta name=\"description\" content=\"What determines the price of gold? For much of the past decade the answer was easy: the price of money. 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