Gold is back in vogue as investors seek out a safe haven amid growing global volatility. The question is whether this gold rally will have legs, or whether it will fizzle out like numerous others over the past few years.
The yellow metal is in the midst of a tremendous upward move, jumping 18 per cent since the start of 2016. The key gold futures contract rose by a whopping US$53.20 an ounce on Thursday alone, bringing it to US$1,247.80. Gold’s performance this year is the polar opposite of most other commodities, which are down sharply.
Gold’s surge comes as global equities tumbled into a bear market. On Thursday, stock indexes worldwide fell on fears over the health of the global economy and banking sector, with MSCI’s world stock index dropping to more than 20 per cent below its peak, while safe-haven 10-year Treasury yields hit their lowest since 2012.
Several factors are working in gold’s favour: In addition to wobbling financial markets, central bank gold buying is on the rise and the U.S. dollar is weakening as investors are increasingly doubtful that the Federal Reserve will raise interest rates as much or as quickly as previously assumed. Those doubts gained steam after chairman Janet Yellen’s remarks to Congress this week, in which she took a cautious tone on the economy.
Over the past few years, the consensus view from Goldman Sachs and other Wall Street banks was that U.S. interest rate hikes were imminent and were poised to crush the gold price.
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