Investors’ appetite for ‘risk off’ assets resulted in significant inflows into exchange-traded products linked to gold in January, reaffirming their status as a safe haven during times of heightened market volatility and economic weakness.
Joe Foster, Gold Strategist at Van Eck Global.
In a month which saw the Shanghai Composite Stock Index plunge 6.9% on 4 January alone and end the month down 22.6%; the S&P 500 Index and MSCI All-Country World Index fall by 5.1% and 8.0% respectively; copper weaken by 3.8%; oil sink 9.0%; and even the Japanese yen end down 0.8% relative to the US dollar, gold delivered a shining performance by rising 5.3%.
Holdings of global gold bullion ETPs rose by 3.8%, or 1.8m ounces of physical gold, over the month, with ETP issuers such as ETF Securities, Source and Market Vectors all seeing strong inflows into gold-linked products.
In a recent market commentary, Joe Foster, a gold strategist at Van Eck Global, the asset manager behind the Market Vectors line-up of ETFs, noted that the gold price not only managed to gain in a month where the US dollar also finished higher, but it outperformed significantly, exemplifying the precious metal’s status as a safe haven in turbulent market conditions.
According to Foster, “Financial markets in January helped to remind investors around the globe why perhaps every portfolio should have an allocation to gold. It is our opinion that gold should be used mainly as a portfolio diversifier and as a hedge against tail risk; a form of portfolio insurance that attempts to preserve value when tail risk becomes a reality. Gold has little correlation to other financial assets.
“When most other investments are performing poorly, gold is expected to do well, and vice versa. Worsening financial conditions, escalating geopolitical turmoil in the Middle East, recurring issues with European sovereign debt, currency issues and slow growth in China, Russian aggression, and failure of Japan and the US to reach their economic potential are all risks that threaten growth and economic development globally.
“Gold can act as a financial hedge against these risks.”
In addition to the Market Vectors Gold Miners range of ETFs, which includes the NYSE-listed Market Vectors Gold Miners ETF (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ) and their European-listed UCITS equivalents Market Vectors Gold Miners UCITS ETF (GDX) and Market Vectors Junior Gold Miners UCITS ETF (GDXJ), investors can gain direct exposure to physical gold via a multitude of products. Notable European-listed products include ETFS Physical Gold (PHAU), Source Physical Gold P-ETC (SGLD), and the iShares Physical Gold ETC (SGLN).