Why Gold is Gaining Appeal

Gold miners are up today, even though gold prices have barely moved.

At time of writing, Gold Road Res Ltd [ASX:GOR] is up by 3.43%, with the share price hovering at $1,215. St Barbara Ltd [ASX:SBM] is up the same amount to $2.57 and Silver Lake Resources Ltd [ASX:SLR] is up by 1.90% to $1.20.

What’s going on with gold?

There’s been a lot of excitement about gold this year from investors and gold explorers as gold prices have been climbing. Since June, gold prices have increased by over 13%.

Truth is, there are plenty of factors pushing gold prices up.

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For one, we are seeing higher risks. There is a lot more instability, more worry about the U–China trade war, and a lot of debt. Since the 2008 crisis, world debt has been climbing to reach $250 trillion, or 320% of the global GDP.

Something else boosting gold prices is that central banks from countries like Russia, China, Hungary, Poland and India among others have been buying a lot of gold.

As Bloomberg reported yesterday:

Central banks are consuming a fifth of the global supply of gold, signaling a shift away from the dollar that’s bolstering the case for owning bullion, according to Goldman Sachs Group Inc.

 “De-dollarization in central banks – demand from central banks for gold is biggest since the Nixon era, eating up 20% of global supply,” Jeff Currie, the head of global commodities research at Goldman, said in a Bloomberg Television interview Monday. “I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization.”

Gold has also been gaining ground because of low interest rates. You see, gold has no yield. Yet with developed countries increasingly lowering their interest rates towards zero or even negative, and banks starting to charge to keep a deposit, gold’s appeal is increasing.

For Australians, gold this year has had an added benefit: Gold is priced in US dollars so as the Australian dollar has depreciated against the US dollar, gold priced in AUD has seen higher gains, as you can see below.


Source: Bloomberg

 What could happen next?

It’s very likely that these trends will continue in the near future. While Australia still has higher interest rates than Europe and Japan, we are now following the trend of other developed countries towards lower rates.

Check out my interview with US economist and gold expert Jim Rickards, where he explains why low interest rates are taking us towards a financial crisis worse than in 2008, and what you can do about it.

You can watch it here. 


 Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

The Rum Rebellion