Investing in gold be a good hedge against falling stock markets
Photo: Fotolia/Ded Pixto
The price of gold since the beginning of the year grew by nearly 20%. Investors, including the famous George Soros, are buying the metal to hedge against risks associated with low growth of the world economy and China’s slowdown. The majority of surveyed Banks.<url> experts believe that gold can be a good investment this year and a hedge against falling stock markets. However, due to the high dependence of the gold price from the policy of the U.S. Federal reserve, long-term investors should invest in the metal gently – no more than 8% of assets.
According to the report World Gold Council (WGC), the demand of investors for the precious metal in January — March led to a 17 per cent jump in prices in dollars, which is a record for 30 years. Since the beginning of the year grew by 20%. The driver of growth are the investments in ETF (exchange traded funds — exchange traded funds) whose underlying asset is gold. Investment in ETFs YTD increased by 24%, to 58.2 million ounces, the highest since December 2013.
According to experts, interest in gold is heated weak prospects for global growth, a cautious monetary policy of the Federal reserve and risks of China’s economy. “Assessment of the prospects for global economic growth remains pessimistic, as interest rates in many countries either zero or negative” — explain analysts of Sberbank CIB, anticipating that gold demand will continue to grow. The Bank raised its forecast for average gold prices at the end of 2016 by 12% to $ 1 230 per ounce. The price of gold is strongly dependent on the decisions of the Federal reserve. So last Thursday the price of gold fell 1.8 percent after fed President Jeffrey Lacker told Bloomberg that the market had overestimated the desire of the Department to stay in the process of raising rates. Lacker said that he advocated to raise rates in April, and considers that during 2016, the fed should go for four raises.
Concerns regarding the Chinese economy re-emerged after the publication of data on volume of industrial production in the country. According to the National Bureau of statistics of China, the April index rose only by 6% in the previous month, the growth amounted to 6.8%. Fear of the risk of China’s economy made to invest in gold the famous investor George Soros, whose fortune is estimated at 24 billion dollars. In January, Soros said that the situation in the Chinese economy with its dependence on the borrowed funds is comparable to what happened in the US in 2007-2008, and this can lead to a global recession. In the I quarter management company Soros more than a third have reduced investments in us stocks and bought a pack of the world’s largest gold miner Barrick Gold Corp. worth 264 million dollars. In addition, Soros has invested 123 million dollars in shares of exchange-traded Fund, SPDR Gold Trust, backed by gold.
Association of financial market participants “non-profit partnership for the development of financial market RTS” (Association “NP RTS”) in the framework of the information system RTS Board opened a new sector of the market “Coins from precious metals (Bullion Coins).
Asset managers offer investors, whose portfolios no gold, think about turning it on. “Gold is good insurance in case of collapse of the stock market, as its correlation with stocks and bonds is close to zero, and in some cases even negative. At the same time it should be remembered that gold not only provides protection against market shocks, but also allows to reduce inflationary losses”, — says the managing Director of the management company Finex Plus LLC (manages the gold ETF on the Moscow exchange Oleg Yankelev.
Portfolio Manager UK “Sberbank asset Management” (managing mutual Fund “Sberbank — Gold” volume of 908 million) Yuriy Problem] believes that this year, gold could be one of the most attractive investments. “While economic growth is slowing down in developed countries, growing concern about the situation in China, the U.S. dollar weakens against other currencies, and the world’s Central banks are exclusively soft monetary policy, there is every reason to expect continuation of growth of gold,” — emphasizes Problem]. But the optimal weight of gold in a portfolio long-term investor should be 5-8%, says Oleg Yankelev.
According to the head of the investment management company “Raiffeisen Capital, which manages a mutual Fund “Raiffeisen — Gold” volume of 505 million rubles), Vladimir Vedeneyev, gold has no high potential for price growth in the medium term. “This year, gold rose in price amid the collapse of the stock market in January and significant changes in expectations of interest-rate policy U.S. Federal reserve, which resulted in the significant weakening of the dollar,” says Vedeneev, adding that after a sharp rise in the first quarter, gold prices remained at current levels. Instead of gold, he advises to look at the investments in the depersonalized metal accounts (OMS) with platinum and palladium. “In the context of the global economic recovery, these assets can show a good result,” said Vedeneyev. — For example, in April the dollar prices for platinum and palladium increased by more than 10%, whereas gold has increased in price to only 4.9% in dollar terms, but in rubles and at all fell almost 10%”.
The most suitable instruments for beginners investors in precious metals, according to the managers, are the OMC, mutual Funds and gold ETF on the Moscow exchange, which accurately describe the dynamics of quotations of metals are liquid instruments. “For those who prefer to own gold in physical form, I propose to draw attention to gold bullion coins, which are also not subject to VAT, or to consider the purchase of precious metals in ingots by placing them deposited in the Bank. Then the investor remains the owner of the bullion, but the obligation to pay VAT does not arise,” advises the head of Department of operations with precious metals of Lanta-Bank Irina Lozinskaya.
Petro RUDENKO, Banki.ru
Source: Banki.ru
