Gold’s bona fides as an inflation hedge have been tested since the start of last year, but investors have bought up the precious metal in the past week as trust in the banking sector falters. And while bank stocks levelled off after an initial sell-off on Monday morning, alternatives have retained their attractions.
Helped along by expectations that central banks will wind down interest rate increases, gold hit $2,000 (£1,635) an ounce (oz) for the first time in a year this morning. The ongoing developments in the banking world have helped drive up the price from around $1,810 an oz the day before Silicon Valley Bank announced it would need to raise cash.
The price subsequently dropped back below the $2,000 mark on Monday, but inflows into gold ETFs have strengthened in recent days, per World Gold Council data. Peel Hunt analysts noted the precious metal price had form for rising at times of market uncertainty.
“The shotgun marriage of UBS and Credit Suisse will likely remind many of the series of similar forced deals through 2008/09 as counterparty trust evaporated,” said Peel Hunt analysts on Monday. “Gold rallied 30 per cent in the 12 months following the first subprime default, as investors started to look for a place to store value.”
The banks are in much better shape than 15 years ago, however, and central banks are intervening swiftly in emerging crises, as in the case of Credit Suisse (US:CS). There have also been plenty of willing sellers of gold in recent weeks - net ETF inflows for the month to 17 March were $382mn, against gross buying of $2.7bn. In the year to 17 March European investors had been heavy sellers of the metal, with $3.1bn in sales. North American appetite was balanced in the same period, with net buying of just $55mn.
The latest uptick in fortunes for gold comes as the oil price drops on the belief that economic growth for the rest of the year now looks less likely, even as China continues to ramp up activity. West Texas Intermediate (WTI) crude is trading below $70 a barrel, and has fallen 14 per cent this year. “This is good for inflation but may also potentially indicate lower global GDP growth,” noted SP Angel analyst John Meyer.
Other assets that have moved higher in the past week include bitcoin, up a quarter to over $28,000, and (on the opposite end of the risk scale) gilts, with the 10-year yield falling half a percentage point, to 3.21 per cent.
