Recent circumstances have made gold have its best quarter since 1986. What could be the reasons for it boost in shine and what will it mean for the future of the yellow metal?
Early 2016 market turmoil and a lack of confidence in central banks have combined to create a perfect storm that sent gold spiking 16.5% to $1,234 an ounce in the first quarter – the best quarter for the metal since 1986.
CNN Money’s Matt Egan says that gold is crushing virtually every other asset class this year: the yellow metal’s gains still shine the brightest even amid rising bonds and confidence in stocks remains low despite U.S. stocks erasing their huge losses.
Egan sees this as a reflection of gold’s role as the “ultimate safe haven” for frightened investors: between the Dow having its worst start to a year ever, a seeming drastic slow in China’s economy and a crash in oil prices, investors have had no shortage of reasons to be afraid.
It was this fear that caused them to pour $13.4 billion into gold assets during a recent 11-week stretch, amounting to the largest weekly inflow since the 2009 financial crisis – this asset relocation presents a stark contrast to the last quarter of 2015 when investors pulled $2.6 billion from gold.
A loss of faith in central banks and their methods also plays a big role in gold’s surge: investors are worried that the Fed is running out of tools to use in a crisis and the unorthodox tactics that central banks are using to juice their economies have created no small amount of skepticism. The recent launch of negative interest rates by the European Central Bank and the Bank of Japan – the latest and perhaps most concerning of these unorthodox tactics – had prominent investor and gold bull Jeff Gundlach issue a warning saying that negative rates are “really bad” and will “backfire like an old Model-T.” Indeed, the World Gold Council expects these negative rates to “erode confidence” in currencies and increase “uncertainty and market volatility.”
For all of gold’s appeal as a safe haven, the metal stands to gain for other reasons as well – fear trade or not, it’s still subject to laws of supply and demand. These laws could soon provide another boost to prices: Nicholas Colas, chief market strategist at ConvergEx, recently pointed out that gold production declined in the fourth quarter for the first time in years and could do so again this quarter.
What would happen to gold if everyone placed 2% of their money into the metal? Find out here.