Join our community of smart investors

Gold loses its shine

The yellow metal extended its declines this week, falling to a 20-month low
August 15, 2018

The gold price fell to a 20-month low this week, in the latest sign that investors have fallen out of love with the safe-haven asset. At $1,187 (936) an ounce, the yellow metal is at its lowest level since the end of 2016, when investors piled into risk assets after Donald Trump’s election. In dollar terms, silver has fared even worse; at $14.80 an ounce, the metal was last this cheap two and a half years ago, although given the pound’s weakness against the greenback, both gold and silver have held up better in sterling terms.

Indeed, dollar strength has helped spark gold’s decline. Over the past six months, the price of gold has been negatively correlated to the rising US Dollar Index, a basket of competing currencies. Market nerves around European political stability have deterred investors from the euro and in favour of the dollar, with its exposure to a motoring domestic US economy.

Monetary policy hasn’t helped, either. Rising US interest rates, and a hawkish tone from the Federal Reserve, have only added to the dollar’s strength. Flaring geopolitical risk, which frequently led to bids for gold in the first year of Mr Trump’s presidency, have subsided too.

Demand is also down, according to a recent report from the World Gold Council. In the second quarter of 2018, jewellery and bar and coin sales were flat, central banks bought 7 per cent less of the metal, and although European-listed funds continued to buy gold, there were sharp outflows from US exchange traded funds in May and June. Overall, first-half demand fell to its lowest level since 2009.

In a neat demonstration of that fading allure, US investment manager Vanguard recently renamed its $2.3bn precious metals and mining fund the ‘Global Capital Cycles Fund’, broadening its mandate in the process. For investors in precious metal miners, the decline has been even more pronounced. Shares in FTSE 100 giants Randgold Resources (RRS) and Fresnillo (FRES) have now given up all their gains since the first quarter of 2016.