Global “Jitters” Supporting Gold

Europe, and indeed the world, is getting nervous.  At the heart of the nervousness is geopolitical uncertainty courtesy of the key European elections this year, inflation, and of course the unpredictable Mr Trump. 

Europe’s biggest gold ETF, Xetra-Gold, just saw the biggest monthly inflow of funds in January since its inception in 2007, some $906m worth in just one month.  That takes their holdings to 157.9 tonne as of 13 February.

This comes as the anti Islam/anti EU Freedom Party leads many polls in the Netherlands ahead of next month’s election, the similarly far right Le Penn maintains her lead in the French polls, and many are worried about the outcome in Germany too.  That of course leaves the wildcard of Italy with a date still not known but a groundswell of similar disenchantment waiting for the opportunity to be heard.

This anxiety in the market has seen gold up as much as 10% this year and many an analyst predicting more to come.  Just this last week we have seen Bank of America Merrill Lynch forecasting US$1400 by Q4 of this year and Citi forecasting US$1300 this year with more gains to come next year.  Apart from geopolitical risk many analysts are citing rising inflation (forcing real interest rates down) as another catalyst for gold’s rise and of course the unknown Trump effect, as summarised by ICBC Standard Bank analyst Tom Kendall:

"We've got a vacuum of (US domestic) policy, real (interest) rates going down, the dollar going sideways and geopolitical (jitters) around the world ... all helping gold.  There is apparently a move of institutional investor money into gold and there are usually very good reasons for that."