Gold Is Safe Haven - Growing Consensus In Latest Academic and Independent Research

Published on 7 February 2014

Today’s AM fix was USD 1,260.00, EUR 928.72 and GBP 771.16 per ounce.
Yesterday’s AM fix was USD 1,258.50, EUR 930.64 and GBP 772.42 per ounce.

Video Intro: Gold Is A Safe Haven Research Report

Gold fell $0.50 or 0.04% yesterday to $1,257.40/oz. Silver rose $0.09 or 0.45% to $19.94/oz.

Gold is marginally higher again today in all currencies and heading for a higher weekly close of 1.4% in dollars. Gold eked out slight gains yesterday after the ECB and BOE kept rates at 300 year lows.

The U.S. Labor Department report today may show U.S. payrolls growth accelerated in January which could see gold come under pressure. However, should today’s jobs number mirror the poor ADP number earlier this week, then gold could surge higher in value.

Gold in U.S. Dollars, 5 Day - (Bloomberg)

ECB President Mario Draghi made more dovish statements, saying that the ECB “will maintain an accommodative stance of monetary policy for as long as necessary” which was gold supportive.

Draghi reiterated that the bank may take more accommodative action if money-market turbulence resumes.

Gold is 4.5% higher this year on haven demand due to concern that a slump in emerging markets would slow global economic growth affecting global financial markets. Almost $3 trillion has been erased from the value of equities worldwide so far this year.

Global markets are now dependent on the drug that is cheap money and any reduction in money printing and debt monetisation will likely lead to market turmoil and economic dislocations.

Silver in U.S. Dollars, 5 Day - (Bloomberg)

Silver posted the longest rally since August, extending a 2014 rebound of over 3% this year as turmoil in emerging markets and slowing economic growth reignited demand for haven assets.

Silver has rebounded 9.7% from a 34-month low on June 28 as physical demand increased. Sales of silver coins by the U.S. Mint almost quadrupled in January, while gold purchases surged 63%.

Gold traders, analysts are bullish on gold again for next week after global equities fell to nearly a 4 month low this week. The Bloomberg gold survey for next week showed that 17 were bullish, 14 were bearish and 2 were neutral.

Chinese store of wealth buyers return from a week long Lunar New Year holiday which should support physical demand. China became the world’s largest gold buyer last year.

Perhaps more than any other financial market, the gold market is subject to a huge amount of opinion, much of it emotional, subjective and not based on facts. The empirical evidence seen in research, both academic and other independent research, is often ignored. As is the historical record and the experience of people throughout the world in recent years and throughout history.

Simplistic analysis and sound bites abound. It is important to focus on the data and the facts and today we have looked at the academic research pertaining to gold.

There is a significant and growing consensus amongst academics, independent researchers and asset allocation experts that gold is a hedging instrument and a safe haven asset. Thus, many financial professionals now believe that gold should form part of investment and savings portfolios for reasons of diversification and financial insurance

Indeed, there is now a large body of academic and independent research showing gold is a safe haven asset and showing gold’s importance in investment and pension portfolios. This allocation is in order to both enhance returns but more importantly reduce overall volatility.

Gold and S&P 500, 1999 To Today - (Bloomberg)

The importance of owning gold in a properly diversified portfolio has been shown in numerous academic papers. It has been shown in independent research by the asset allocation specialists, Mercer Consulting and Ibbotson Associates. It has also been shown by consulting group, New Frontier Advisors and by leading international think tank, Chatham House.

Gold has protected people throughout history from inflation and currency debasement. The historical record also shows how gold has protected people from stock and property market crashes, and from asset confiscation.

John Maynard Keynes is reported to have said, 'When the facts change, I change my mind. What do you do, sir?'

The facts regarding gold have changed in recent years. Since the global financial crisis began in 2007, gold has outperformed most assets and again shown itself a safe haven. The data and research on gold over the long term is confirming this.