In Depth

Gold price waits for rates clues from Jackson Hole

Political turmoil in the US has the potential to 'help gold in the short and longer term'

Gold price hits three-month high on 'Frexit' fears

7 February 

Gold prices rose to near a three-week high yesterday, as French presidential hopeful Marine Le Pen added to perceived geopolitical risks driving a renewed bout of "safe-haven" trading.

The leader of the far-right National Front, who is among the favourites for the election, launched her party's 144-point manifesto, pledging populist policies such as cutting taxes for the lowest paid and retaining the 35-hour working week.

But she also stoked fears of a "Frexit" – France leaving the European Union – with her promise of a "radical" renegotiation of membership terms in the six months after the election, says BullionVault.

This would echo David Cameron's largely unsuccessful attempts to renegotiate Britain's membership last year, which led to June's referendum and the vote for Brexit.

Fears that France might follow the UK out of the EU, destabilising the European economy in the process, spooked investors, reports BullionVault.

Such concerns add to the political tensions, mostly emanating from the US, where President Donald Trump has provoked global furore with his so-called "Muslim ban", dominating trading sentiment.

Trump is also engaged in a tense stand-off with Iran that could, if it escalates, see "one side or the other… pull out of the nuclear accords".

At times of geopolitical tension, investors run for cover, usually in gold, causing the price to rise to $1,235 an ounce yesterday - the highest it has been since 11 November, in the days after Trump won the US presidential election.

Trading edged lower to $1,228 an ounce this morning, on profit-taking by investors.

Mark To, head of research at Hong Kong's Wing Fung Financial Group, told Reuters there is potential for gold to rise to $1,250, but that it would be ripe for "correction" thereafter.

Traders are acutely aware of the prospect of several interest rate rises in the US this year, which increase the opportunity cost of holding non-yielding gold.

Patrick Harker, a member of the rate-setting committee at the US Federal Reserve, said yesterday he would be open to increasing rates as soon as next month if growth in jobs and wages continue.

Gold price: Randgold hits record production high

6 February 

Gold mining company Randgold Resources have announced a 52 per cent increase in dividend payouts after production levels rose for a sixth year in a row.

Its mines hit a record high in 2016, extracting more of the precious metal than ever - 1.25 million ounces, up from 1.21 million last year - while simultaneously slimming down operating costs.

As a result, final tallies put Randgold's profit for 2016 at $294.2m (£236m), a year-on-year rise of 38.2 per cent - including a 76 per cent rise in fourth-quarter profit. It means investors will enjoy a 52 per cent boost to their dividend, bringing it to $1 per share.

In response, the company saw its share price climb by more than four per cent in early trading, City AM reports.

Chief executive Mark Bristow told the Daily Telegraph that the company plans to open three new mines over the next five years.

He added that Randgold's operation is structured to ensure it can keep turning a profit even if the gold price falls as low as $1,000 an ounce – well below the current going rate of $1222.35.

Gold has been making a steady recovery from its Christmas low of $1,128.90, "benefiting from a retreat by the dollar, as a weaker buck makes dollar-denominated commodities less expensive for holders of other currencies", Market Watch reports.

However, equity analyst Nicholas Hyett told the Telegraph that the gold business, susceptible to the sometimes sharp rises and falls of the market, is inherently unpredictable.

"While the group's high-quality, low-cost mines aim to be profitable at $1,000 dollars an ounce - a price we haven't seen since the financial crisis - it remains a play on the gold price and that brings risks," he said. 

Gold price benefits from 'safe haven' trades

06 February

If you thought 2016 was a rough year then I’m afraid I’ve got some bad news: several finance experts are predicting that 2017 will hold plenty of shocks for your portfolio too.

From the threat of a far-right National Front victory in the French presidential elections to the return of the Greek debt crisis - and of course, the uncertainty surrounding the Donald Trump presidency - there is set to be plenty of drama that will have an impact on markets.

With the potential for a turbulent year on the stock markets gold, a tried and tested safe haven investment, is looking attractive to investors.

During the banking crisis of the 1970s investment guru Jim Slater urged nervous investors to buy baked beans and Krugerands. It seems the same is happening now.

“The survivalist essentials of 2017 are more sophisticated and costly, such as a luxe condo in a former nuclear bunker. Gold coins are still a part of the end-of-days kit, however, alongside a helicopter on standby,” says Anne Ashworth in The Times.

“Bullion is a store of value in uncertain times,” says Ashworth.

The fact the gold price is trading at around ten per cent higher than a year ago reflects investor fears for the stock market. 

Actually gold is well down since the election of Trump and since the Federal Reserve signalled a more hawkish stance on interest rates in December, but the metal has consistently found support around $1,200 an ounce and is set to post a weekly rise this week.

This morning it was down slightly from yesterday's high, at $1,211 an ounce.

How to get into gold 

If you are considering rebalancing your portfolio to increase your weight to gold, or to add it into the mix as a hedge against your risk assets, here is how you go about it.

The easiest way to add gold to your investment portfolio is via an exchange-traded security or fund, such as iShares Physical Gold or ETF Securities Gold Bullion. These simply passively track the gold price, minus fees, and are traded just like a share.

You can hold these within an ISA and they are traded on most investment platforms. The annual charge is 0.25 to 0.39 per cent.

Another option is a more straightforward gold fund such as Blackrock Gold & General, which invests in companies whose fortunes are tied into the gold price, such as miners. But you’ll pay a  premium for the active manager: 1.75 per cent in annual management charges for this particular fund.

As is the case with buying shares in gold miners directly, too, bear in mind these companies have other factors affecting their share price beyond the gold price - and they are generally more volatile.

Finally, you could consider investing in physical gold. You can buy gold coins and bars for as little as £134 for a half sovereign. Bars and coins are VAT-free and profits on coins are exempt from capital gains tax.

You need to consider where you are going to store them, though. If you are going to keep them at home check they will be insured under your home contents policy – some insurers may stipulate they have to be kept in a professionally installed safe.

Alternatively, you can buy your gold via a bullion dealer such as the Royal Mint or Bullion Vault. They will charge you a small fee – as little as 0.12 per cent a year – to store your gold in their secure facility.

Building a bunker and stocking up on tinned goods may be taking your worries about the world a step too far, but, when it comes to your investments some common-sense safeguarding is a good idea. 

Gold price rise after 'anti-climactic' Federal Reserve report

2 February

The gold price has ultimately come out stronger following the Federal Reserve's latest policy update yesterday.

Having settled 0.3 per cent lower at $1,208 an ounce prior to the central bank's announcement, the metal gained in after-hours electronic trading to rise above $1,210, says MarketWatch.

This morning, gold was changing hands for $1,217 in early trading in London.

The flip-flopping came after broadly positive economic indicators for the US were followed by a Federal Reserve report said by Brien Lundin, editor of Gold Newsletter, to be  "about as anti-climactic as I can remember".

Those earlier indicators included a positive reading on US manufacturing activity and a private sector employment report showing a rise of 246,000 jobs last month.

While it noted the improved sentiment, there was little in the Fed's "post-meeting communique to indicate when [it] might resume" increasing interest rates, says CNBC.

Gold is largely defined by moves in interest rates, as it does not offer an income yield so its opportunity cost rises when rates are rising.

However, there is downside risk looming.

"The Fed signalled it wants to raise interest rates three times this year. The market expects two rate hikes, with the first coming in June," says MarketWatch.

If the Fed increases rates sooner and looks set to meet its current projections, traders will probably sell gold to realign their positions to a more hawkish rates outlook.

Gold price back above $1,200 as Trump rattles markets

31 January 

The gold price jumped sharply today, adding close to $20 per ounce to $1,213, as Donald Trump's radical policy agenda continues to rattle markets.

In particular, the US President's temporary ban on nationals and dual-nationals from a number of majority-Muslim countries, which has sparked global protests, is giving rise to fears over the effects of protectionism on growth.

"There are talks that the ban could affect the tech and energy sectors and this suggests that there could be some growth challenges if the ban is prolonged," Barnabas Gan, an analyst at OCBC, told Reuters.

The swift and bullish nature with which the policy was introduced has also confirmed to many analysts that Trump will pursue the populist agenda he set out during his election campaign.

The flip side of that is that it also increases the chances he will go ahead with a pledged $1trn (£800m) spending boost that could massively boost growth.

For now, though, it's the safe haven rush that is moving the gold price, a shift being exacerbated by a fall in the dollar, against which the metal is held as a hedge.

Business Insider reports Trump adviser Peter Navarro appearing to repeat the President's view that the dollar is currently too strong.

He said that Germany was taking advantage of the EU and the US by using a "grossly undervalued" euro. 

Traders are also looking ahead to a meeting of ratesetters at the Federal Reserve tomorrow.

The central bank is expected to increase interest rates three times this year, according to a hawkish forecast set out in December.

However, amid the broader economic uncertainty and underwhelming jobs data last week, it is not thought likely that rates will rise this week.

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