Jewellery shoppers will do well to brush up their awareness of upcoming elections in Europe. Political upheavals stand a better chance of determining short term gold price movements than any changes in consumer demand.
“The elections across Europe this year have scope to shock markets again,” states Suki Cooper, Precious Metals Analyst at Standard Chartered, quoted in the “Gold Investor” volume released by World Gold Council on Thursday.
“Markets will focus on three political events: first, the general election in Netherlands; second, the presidential election in France, and third, the federal election in Germany.
“In each case, gold could suffer initially, as investors seek liquidity, following increased concern that anti-EU parties could succeed in upcoming elections, threatening the future of the EU. Thereafter however, gold’s safe-haven appeal could shine again.
“A weaker euro and a stronger gold price have coexisted before.”
Political events had impinged on gold prices through the second half of 2016. Late June, there was the Brexit result and the metal immediately felt the heat of the shock. And right up until the November 8 election day, analysts were unanimous that a Trump victory would lead to firming up of gold prices and a dollar erosion.
But things didn’t pan out that way. Dollar gained and brought pressure upon gold. Since the start of the year, gold has been treading up, to currently stand at $1,235.47 (Dh4,537) an ounce on February 16. (It was $1,128.33 on December 15.)
“We had a glimpse of broad-based investors returning in 2016 as perceived political risk grew,” says Cooper. “While we think it is unlikely that anti-EU parties will come to power in 2017, gold could well find a catalyst in the uncertainty created by the elections.”
There will not be much help coming from consumers — in fact, the price firm ups in recent weeks have put them off from purchases. And it is a pattern that continues on from what was recorded during the better part of last year.
Even then, global gold demand did rise 2 per cent in 2016 to 4,309 tonnes, and the highest since 2013, according to the World Gold Council. But this was more a function of institutional investors and exchange traded funds dealing in the commodity rather than retail level demand.
In a market update it issued on Thursday (February 16), Bank of America Merrill Lynch’s February “Fund Manager Survey” reckons that gold (is) viewed as the “best protectionist investment, with a record net 15 per cent of investors considering it undervalued.” And a net 28 per cent of investors — the highest proportion since September 2006 — think the dollar is overvalued.
Meanwhile, in the WGC report, the former US Federal Reserve chief Alan Greenspan weighs in favour of gold as still offering much by way of an asset class.
“Significant increases in inflation will ultimately increase the price of gold,” Greenspan notes. “Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.
“I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature.
“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty.
“Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity.”