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August 1, 2019

Gold price rises in July strengthen status as safe haven asset

By Jamie Crawley

Gold will continue to be viewed as a safe haven asset in present economic environment, says the Royal Mint after it witnesses a 40% rise in interest in the yellow metal in July.

With expectation of lower interest rates in the US, a weakening  dollar, and geopolitical uncertainty everywhere one looks, investors have been looking to safe haven assets to hedge against volatility.

The price of gold is one beneficiary of this, enjoying a surge in recent months, taking it to six-year highs of over $1400/oz.

“Last month we experienced a 40% rise in interest from new customers looking to invest in precious metals compared to the same period last year,” says Nicola Howell, executive director at the Royal Mint.

“As a result of the heightened investor interest, we have also seen a doubling of gross profits since 1 April this year, compared to last year.

“Precious metals have a long-standing reputation as ‘safe haven’ assets, whereby they have the ability to provide an additional layer of protection to investment portfolios when stock markets are more volatile.”

The Royal Mint attributes this trend to concern over ongoing political tensions around the world, particularly prevalent in the UK thanks to the ongoing Brexit conundrum.

Gold enjoying status as safe haven asset

Howell also points to the Fed’s first cut to its interest rate since the financial crisis, a much-anticipated move which she believes is a factor in the huge rise of interest in gold over the last month.

No immediate effect was witnessed after Jay Powell’s statement, however it is possible the expected rate cut was already priced into the value of gold.

“Whilst yesterday’s announcement did not result in an immediate spike in the price at the time of writing, we would not be surprised to see gold hit another milestone in the not so distant future as investors around the world continue to view it as a trusted and reliable asset,” Howell adds.

This is a view backed up by a number of major banks who have taken an overweight position on gold this year.

Lombard Odier bought gold at $1282/oz, building a 3% overweight position compared with their strategic benchmark, CIO Stéphane Monier stated this week.

The Swiss bank views the present environment as beneficial to gold prices and its effectiveness as a safe haven asset.

“We believe the current environment justifies an allocation to gold in our client portfolios,” Monier says.

“We expect the combination of low government bond yields, uncertainty around US-China trade relations and a weakening US dollar to stay with us in the months to come.”




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