February 11, 2016
The stock market plunge has triggered a gold buying spree with a popular fund that tracks the metal accepting the most cash on a single day since the financial crisis on Tuesday. Funds that invest in gold have been flooded by nervous investors seeking shelter from stock market volatility
Market Panic Pushes Gold Buying to Highest Level Since Financial Crisis
Index fund provider ETF Securities told Telegraph Money that February 9 saw the most money flow into Gold Bullion Securities, its gold tracking fund, since January 2009. Investors poured in £239m.
James Butterfill, head of research, said investors had become more cautious and were buying gold to shelter from stock market volatility.
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He said the firm’s gold products had attracted £500m of new money so far this year.
The surge in demand has pushed the price higher, with spot prices up 16pc since the beginning of 2016, representing the precious metal’s best start to the year since 1980. Gold prices jumped to their highest level in a year on Thursday, gaining 3.6pc at one stage to $1,234.64 an ounce.
The buying spree reported by fund providers was reflected in a World Gold Council report today that said jitters about the global economy had driven purchases at the start of the year.
Demand picked up in the final quarter of last year as central banks bolstered their reserves and investment demand increased even as the US Federal Reserve raised interest rates, its latest gold trends report showed.
Alistair Hewitt, head of market intelligence at the council, said strong appetite for gold at the end of last year continued into January 2016, when concerns about the Chinese economy and plunging oil prices triggered a massive stock market sell-off.
Mr Hewitt said the pick-up in demand was likely to continue in the coming months.
“People, and especially institutional investors are becoming more concerned about the threat of a global recession and how that could affect the banking system.
“There’s just a great deal of volatility in financial markets. So it’s no surprise we saw inflows into exchange traded finds of 54 tonnes in January,” he said.
“Investors are looking ahead towards 2016. The focus is on volatility, and lots of people believe 2016 is going to be more volatile than last year … especially with the uncertainty surrounding the US elections … Gold has always been an attractive asset to buy in uncertain times.”
The data showed gold demand grew 4pc in the fourth quarter compared with the same period a year ago, to 1,117.7 tonnes.
This strong fourth quarter performance follows weakness in the first half of 2015 which meant global gold demand last year was almost flat compared to 2014, at 4,212 tonnes.
The fourth quarter performance was driven by a 25pc increase in demand from central banks, many of which are trying to diversify away from the dollar.
Russia’s central bank stockpiled the most gold last quarter, adding an estimated 60 tonnes to its reserves. The country has bought around 200 tonnes of gold this year, 141 tonnes of which is estimated to have been snapped up between July and September.
The majority of global stock markets have had a nightmare start to 2016, with Britain’s blue-chip share index, the FTSE 100, shedding 12pc. Last month the index entered a bear market after registering a 20pc fall from its peak last April.
This has led some investors to bag profits and seek shelter in gold, the value of which tends not to move in line with other assets, such as shares or property.
“Investors are returning to gold as a core diversifier and safe haven investment. Given the increasingly challenging investment and economic environment, we expect this trend to continue,” Mr Butterfill said.
Unit trusts that invest in bullion and gold mining companies have enjoyed a strong run amid the uncertainty.
The most popular, BlackRock Gold & General, has returned 25pc over the past six months. Long-term investors, however, are still nursing big paper losses, with the fund down by 58pc over five years.
It has been a similar story for the Investec Global Gold and Smith & Williamson Global Gold & Resources funds, as shown in the chart below.
Gold – the pros and cons
Gold is the Marmite of investment; below we briefly go through the pros and cons.
• The precious metal’s value tends not to move in line with other assets, such as shares or property.
• It is therefore viewed as offering the best insurance against inflation and other hazards that could potentially derail global stock markets.
• Gold pays no income – so it is difficult to value
• It is extremely volatile. The price of gold has had a rocky ride since 2011. Three years ago the gold price was more than $1,800, but today it has slumped to $1,200.
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