But monetary policy and inflation expectations have an impact on the price direction
How's this for poor taste? "Gold prices have risen following news of the potential shooting down of a
That line is from a press release issued in mid-July. It went on: "The ramifications from today's news are likely to trigger renewed interest in gold buying as worried investors seek out the safe haven metal." Gold was around
Since the start of a year characterised by unexpected geopolitical events, the gold price is up 7.3 per cent in dollar terms. Thanks to the appreciating pound, the return in sterling has been lower, at 4.9 per cent. Shares, as measured by the All share index, are down about 1.8 per cent while
You know the gold bugs are getting desperate when they invoke the "safe haven" argument. It all goes back to 1980, when the Soviets invaded
But the world was a very different place in 1980, both in terms of geopolitics and finance.
So what does move the price? According to BullionVault customers, monetary policy does. A third of them believed so, compared to less than a fifth who believe geopolitical factors did, and only 14 per cent who thought inflation was the driving force behind prices.
They're right about inflation. As
It doesn't offer much protection from falling stock markets either (14 per cent of those surveyed believed equity markets drove gold prices). According to
Are they right about interest rates? I can't see any obvious reason why gold - an asset that generates no income and has few productive uses - should be correlated with interest rate movements. But I can see why it would be connected to the end of ultra-accommodative monetary policy; after all, everything is. The mechanism is not financial, but psychological. Uncertainty drives the buying. Gold is viewed as insurance against things that are difficult to predict and unlikely to occur, but which would be very expensive if they did.
Like, for instance, the complete implosion of the financial system in an inflationary firestorm following decades of irresponsible money creation.
Many clever and rational people believe this is a distinct possibility, even as economies around the world recover. They may be right; sovereign and individual indebtedness is still far too high in many countries, including the
Does that mean I'll put some physical gold trackers in my Isa, when I finally get around to rebalancing it? I remain to be convinced. A 5 or 10 per cent allocation to gold - the amount most advisers seem to think is reasonable - isn't going to save my bacon if the unthinkable does happen and everything else tanks. In the meantime it's dead, yieldless money.
Besides, I figure that if western civilisation does collapse, I'll have more pressing things to worry about than the state of my investment portfolio. As
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