Is gold finally regaining some of its tarnished lustre? After a sustained fall which saw the price of a troy ounce tumble from close to $1,900 in 2012 to a low around the $1,140 level in November 2014, the yellow metal has been slowly ticking upwards with a noticeable acceleration from the turn of the year, since when it has advanced almost 10 per cent.
This week, as the Swiss National Bank's decision to remove the artificial peg between the Swiss franc and the euro was still creating waves, gold hit the $1,300 level for the first time since August amid reports of strong inflows into gold investment vehicles such as exchange traded funds.
The paradox in the latest rise, and potential buyers should bear in mind a similarly strong performance for gold prices in the early weeks of 2013 that soon petered out, is that gold's traditional role as an inflation hedge is not playing out this time, given that deflation is the name of the game across most global economies right now.
But gold is fulfilling its role as a safe haven of choice as political risk and economic uncertainty rear their heads again. The unexpected Swiss move last week and the impending announcement from the European Central Bank over its expected full-blown quantitative easing programme, coupled with the Greek elections this weekend, go some way to explaining the rise in demand for gold since the beginning of January.
The major question is whether gold can sustain its recovery this time around. There are several factors that illustrate its current appeal, not least of all the deflationary pressure beginning to bear down on the eurozone. There is no certainty that eurozone QE, should it be enacted on Thursday (after the Investors Chronicle goes to press), will work given that the conditions placed on it by the eurozone's dominant economy, Germany, could water down its effectiveness.
In the meantime, the safe haven of Switzerland, which absorbed billions of euros in the lead-up to the establishment of the currency peg in 2011 - and has spent considerable sums since then maintaining the peg - suddenly doesn't look so attractive, given the exchange rate surge and the fact that funds deposited there now attract negative interest rates of 0.75 per cent. With marginal rates elsewhere and the prospect of further squeezes as central banks attempt to encourage monetary flows into the economy, alternatives such as gold and silver start to look more attractive.
