Gold no longer a safe haven asset

Here be no dragons

On Thursday, the gold price continued to pare recent gains as global equity markets recovered and economic news out of the US buoyed the dollar.

In late afternoon dealings in New York, gold futures with December delivery dates lost $2.80 or 0.2% to $1,121.80 an ounce in another day of brisk trading.

Gold has now lost 3.2% since Friday after four straight days of declines.

The better than expected GDP numbers in the US put a September Fed rate hike back on the table, which diminishes gold allure for investors as the metal is not income producing.

Gold is still well above the more than five-year closing low of $1,084 struck August 5 but the safe haven buying amid the panic on markets did not materialize to the extent many bulls had hoped.

Georgette Boele of ABN Amro in a Thursday research note argues that gold did not enjoy a stronger rally because the weaker Chinese economic outlook “outweighed safe have demand.”

Boele also believes gold’s safe haven status had been eroding over the course of many years:

“The gold market has dramatically changed with the arrival of gold products that opened the market to a wider public. Gold is not only bought as a protection for uncertain times but also for speculation purposes.

“At the height of the global liquidity crisis (when there was a shortage of liquidity) gold prices dropped sharply because investors valued cash more than gold.

“This suggests that at times of severe crises, gold could not live up to its safe-haven status. The variation in the gold price has coincided with a buildup and liquidation of outstanding investor positions in gold.

“This is not a positive development for a safe-haven asset, because significant investor activity could indicate that it is used for speculation rather than as a safe haven.”

Speculators ruined gold's safe haven reputation long ago – this week's tepid response to the market panic is the just the latest example says new report.

Source: ABN Amro

The bank’s house view is a gold price of $1,000 an ounce by the end of the year, weakening to $800 an ounce at the end of 2016.