A large number of factors are stoking fears on the international financial markets at the moment. On the one side are global economic concerns, which are growing constantly due to the trade dispute between the USA and China. For the fourth time in a row, for instance, the International Monetary Fund (IMF) has recently cut its 2019 growth forecast for the world economy. It now expects a rate of 3.0%, whereas the IMF had previously held out the prospect of a rise of 3.2%. The uncertain consequences of Brexit and sometimes sobering company results, however, are also dampening financial markets. As the saying puts it so beautifully, though, “one man’s meat is another man’s poison.” The issues of the moment are making gold an attractive investment again, with the price per ounce having risen by around 16% since the turn of the year.
The changes in interest rate cycles are also adding lustre to the precious metal. Contrary to its intention even at the end of last year, the US Fed did not continue to increase base rates in 2019, instead turning the monetary tap on again. The currency watchdog has already cut rates twice, while there could now be another one at its October session. According to the “Fed Watch Tool” of the CME, 85% of market players expect there to be a reduction in base rates by 25 basis points on 30 October. Low interest rates generally go hand in hand with higher gold prices, because the precious metal offers the allure of security and an appreciation in value. View more information on investment solutions on the topic “A coveted precious metal: gold takes flight”.
Producers of gold are profiting from rising equity prices, with some industry representatives having even run on ahead recently. These include Barrick Gold, the value of the Canada-based group having already climbed by just under 30% so far this year. Bottlenecks in extraction could add further lustre to the precious metal, and hence gold mines as well. Production in South Africa, for instance, which once set an example, is continuing to decline. The reason is that the industry in the country is struggling with rising costs. Since surface deposits are gradually being exhausted, companies are having to drill ever deeper. But it is not only the rising cost of extraction that is exacerbating the situation: the costs of electricity and labour have also climbed sharply of late. According to a study by the Boston Consulting Group, gold production in South Africa could almost halve by 2030. That will benefit those who, like Barrick Gold, have mines spread across 20 countries on all five continents.
According to the World Gold Council (WGC), the industry association, China is the current world number one for mining. The Middle Kingdom not only leads the way in production, though: it is also setting the pace in demand. The government especially has recently bought large quantities of gold. However, other monetary authorities are also intervening more, with central banks worldwide having bought a total of 374 tons of gold in the first six months. According to the WGC, these were the highest net purchases since records began in 2010. The interest of investors in the yellow metal also remains high. This can best be observed by the continuing ETF inflows. The gold ETFs covered by Bloomberg saw uninterrupted inflows for more than two weeks in a row at the end of September and the beginning of October.
