This month, the World Gold Council (WGC) released a new edition of Gold Investor, its publication on the gold market. What can we learn from the report?

Gold: the ultimate insurance policy

The latest issue contains a few interesting articles about the precious metals market. Let’s analyze them, starting with the hottest piece, i.e. the interview with Alan Greenspan, Chairman of the Federal Reserve from 1987 to 2006. The most important part is his belief that stagflation is coming, which will ultimately increase the price of gold. Hence, investment in gold is insurance for long-term protection, not for short-term gain. Greenspan also views gold as the primary global currency, which, along with silver, has an intrinsic value, and praises the gold standard. Isn’t funny to hear such words from Greenspan, who was responsible for the Fed’s loose monetary policy which led to the dot-com bubble and the subsequent real estate bubble?

Smart investing and the role of gold

Celia Dallas, Chief Investment Strategist at Cambridge Associates, notes that investors will face a wide range of geopolitical and macroeconomic risks in 2017. Hence, she suggests de-risking portfolios and focusing on safe-haven assets, such as gold. The yellow metal is considered to be a useful addition to portfolios in the current environment of swelled central bank balance sheets and competitive currency devaluations. We generally agree that gold is a useful portfolio diversifier, but we are not convinced by the narrative about currency wars and deliberate devaluations.

European uncertainty: a catalyst for gold

Suki Cooper, precious metals analyst at Standard Chartered Bank, believes that rising political uncertainty across Europe could boost gold. She points out that the elections across Europe raise broad-based concerns, which are likely to trigger a renewed search for gold. We agree that the increased political uncertainty may support gold prices, but when these risks unfold, the price of gold may decline, as it happened some time after the Brexit vote.

Maximizing gold’s monetary value

Erkan Kilimci, Deputy Governor at the Central Bank of the Republic of Turkey, argues that gold can play a much greater role as a reserve currency. It is because gold is a liquid and safe asset which has no credit risk. Moreover, gold can be monetized and Turkish banks can post gold as required reserves deposited with the central bank. What is interesting is that in Turkey they allocate 13 to 15 percent of the currency reserves to gold.

Gold and currencies: looking at gold beyond the U.S. dollar

Juan Carlos Artigas, Director of Investment Research at the World Gold Council, points out that 90 percent of physical demand comes from outside the U.S. Therefore, the price of gold in their local currencies may be more important for them – and it can differ from the dollar price. This is why there is asymmetry between the greenback and the yellow metal: if the dollar rises against the euro, gold becomes more expensive for European buyers, which pots the downward pressure on the price of gold. We explained that mechanism in one of our previous edition of the Market Overview, but we are afraid that the WGC overstates the role of the physical demand for gold outside the U.S. What about Comex and U.S. dollar-based transactions in London?

Conclusions

The key takeaway is that is that the WGC released a winter issue of Gold Investor. It includes several interesting articles, which basically state that gold is a useful safe-haven asset, portfolio diversifier or an insurance policy during periods of elevated uncertainty. We covered most of them – other texts concern the Shari’ah Standard on Gold, which is believed to be positive for gold as an asset class, the steps to strengthen Turkey’s role as a regional gold hub, or the current statistics and news about the gold market. Stay tuned!

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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