Is Gold really a safe haven?


21 April, STO, LimassolIs Gold really a safe haven? On Monday, gold prices went up as the demand for safe-haven assets increased due to a drop in oil prices after the output treaty failed. Sunday’s OPEC meeting in Doha regarding oil production freeze ended up in a major failure as Iran refused to comply with the proposed restrictions.

The yellow metal closed the previous week with a 0.86% loss on Friday as the greenback demand went up across the board. Although this minor setback, gold closed the first quarter of the year with the highest gains in 30 years. This was to be expected due to the growing concerns among investors regarding global economy – especially the negative-interest policies from Japan and the European Union, which pushed up the demand of bullion and other safe-haven assets (including here the YEN).

Another reason behind the gold hike is Fed’s decision next week, which is expected to be more cautious now that the economic data shows a slow-down in the economy. If there is a Fed rate hike it will boost the USD by making it more alluring to investors seeking high yield currencies, while the yellow metal would be becoming more expensive for the currency holders.

Wednesday’s graphic for the US stocks shows that the day’s trend was close to intraday highs as the turnaround in the crude price and the positive housing data acted as support for the stocks appetite. Oil prices went up yesterday after the US EIA (Energy Information Administration) showed an output shrinkage for the sixth week in a row.

Is Gold really a safe haven?

In the 2nd Quarter of 2013, Gold shrank more than 23% (from $1,596 down to $1,224 per ounce) based on the perspective of an early rate hike from Fed. Since then, we can see no major impacts in the trend, the variation being in line with the normal macroeconomic dynamics. In the first quarter of 2016 the yellow metal gained momentum as the Fed turned dovish and pushed further the schedule of the rate hikes.

On the other side the DJIA – Dow Jones Industrial Average managed to gain nearly 20% over the last 3 years (from $14,578.54 up to the value of $18,096 in April, 2016). The highest gains were in Q4 2013. Based on the positive growth pace in the US economy, stock prices increased steadily during the last 3 years.

Is Gold really a safe haven? In conclusion, gold did not act as a typical safe haven asset during the last 3 years. Should we still consider the yellow metal an opportunity to back up our investment plan or should we start readjust?

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