Investors Seek Safe Haven Assets To Protect Against Global Risk

Release Date: 
Friday, April 21, 2017

Gold prices rebounded Friday ending week essentially flat as uncertainty around the world continue to send investors to safe haven assets such as gold.

“Gold prices are slightly higher in early U.S. trading Friday, as traders are edgy ahead of a weekend French presidential vote and still-heightened geopolitical tensions…
European stock markets were a bit weaker overnight, after a suspected terror attack in France and ahead of the French presidential elections on Sunday… An apparent terror attack in Paris left one police officer dead… European market watchers are getting more nervous as the French elections approach and polls show tight races. The very existence of the European Union could hinge upon elections in the European Union this year.

“Heading into the weekend there are still geopolitical tensions--the U.S. and North Korea, and the U.S. and Russia. This week’s hawkish U.S. posturing against its world adversaries is unsettling for many world market watchers and is also a bullish element for safe-haven gold….” (“Gold Slightly Up Ahead Of Uncertain Weekend,” Forbes, 4/21/17.)

Gold ended week down $3.90, closing at $1,284.90. Silver prices closed at $18.00, down $0.62.

Investors Seek Safe Haven Assets To Protect Against Global Risk
The Wall Street Journal reported that investors are moving to safe haven assets such as gold as they seek protection from global risk.

“Investors are bidding up prices for gold, Japanese yen and other haven assets, seeking cover from political and economic risks that are spreading across the globe. Gold prices rose to their highest level since November this week and are up more than 11% this year… Driving the shift to safety is a series of geopolitical events that are beginning to rattle investors. Some of these political concerns, like heightened tensions over North Korea’s nuclear-weapons program, have been around for years but intensified in recent days. IHS Markit, a risk-consulting firm, warned in a Tuesday note about North Korea that ‘the risk of escalation and miscalculation following weapons tests, military exercises, or isolated attacks is greater now than at any point in the past 10 years.’

“U.S. airstrikes in Syria and Afghanistan also have rekindled fears about those conflicts spiraling out of control…With France going to the polls on Sunday, investors worry that candidates from two political extremes could face each other in a runoff. Either one would be a bad outcome for stability and markets, investors say. ‘Typically, you get a market environment that is consumed by a single issue,’ said Robert Tipp, chief investment strategist at PGIM Fixed Income. ‘Now, the attention is focused all across the globe, on a number of issues….’”  (“Rattled Investors Seek Shelter Amid Global Political Tensions,” WSJ, 4/20/17.)

Top Forecaster Sees $1350 Gold, $19 Silver In 2017
The top gold forecaster last quarter believes gold prices may rise to $1350 and silver prices may see $19 by the end of this year.

“Gold will end the year higher, spurred by faster inflation and political tensions in Russia, Syria and North Korea, according to Intesa Sanpaolo SpA, the best forecaster for the metal last quarter. Prices could take a v-shaped path this year, with a swoon coming mid-year as the Federal Reserve raises U.S. interest rates, said Daniela Corsini, an analyst at the bank. Gold will likely bounce back by year-end, reaching a high of $1,350 an ounce in the fourth quarter, she predicted. That would leave bullion at the highest level since September…

“’Markets will surely remain nervous about this uncertainty,’ she said by phone from Milan on Tuesday. ‘And if economic data in the U.S. remains strong, then gold will regain its role as an inflation hedge…’ Silver could climb to $19 an ounce by year-end, compared with Wednesday’s price of $18.2395 an ounce, according to Corsini. The metal has gained 15 percent this year….” (“Gold's Top Forecaster Says Prices May Hit $1,350 by Year-End,” Bloomberg, 4/18/17.)

Gold May Reach New Record High In Next Eighteen Months – Kiener
The managing director and chief investment officer of Swiss Asia Capital, Juerg Kiener, told CNBC that global uncertainty and a move towards safe haven assets may send gold prices to a new record high.

“Juerg Kiener, managing director and chief investment officer of Swiss Asia Capital had presented an extremely bullish view on gold in a July 2016 interview with CNBC, predicting at the time that it could hit all-time highs in the subsequent 18 months… Speaking to CNBC's "Squawk Box" on Wednesday, he defended the commodity, saying that ‘from a fundamental point of view, I think we're going to get a break out on the upside.’ Still, he acknowledged that gold had been basically flat over the last year…

“Part of the bullish case for gold, according to Kiener, is an emerging distrust towards U.S. geopolitical behavior, and accelerating physical gold purchasing in the rest of the world. While some may be discussing the dollar or equities' impact on gold, Kiener said the driving factor behind the metal's price will become ‘the loss in trust of leadership and governments and financial markets.’ With only a small percentage of the global assets currently devoted to gold, Kiener said it would make sense for more investments to pour into such alternatives….” (“One pro explains why he thinks there's upside to gold,” CNBC, 4/19/17.)

“Father Of Logic” Recognized That Gold Is Best Money
A Forbes commentary discussed how Aristotle, the “father of logic,” identified the four characteristics of sound money, all of which can be found in gold.

“Aristotle, a Greek philosopher, student of Plato, teacher of Alexander the Great, and the father of the field of logic, listed four characteristics of any sound form of money:

  1. It shouldn’t be perishable. That’s why—despite all claims to the contrary by preppers—stocked, canned food doesn’t make good money.
  2. It should hold a large amount of value compared to its weight and size. That’s why flat-screen TVs don’t make good money.
  3. It should be easy to separate and distribute, as well as re-combine. That’s why artwork doesn’t make good money.
  4. Intrinsic value. It has value in and of itself; it doesn’t derive its “worth” from something else. That’s why unbacked paper currencies (aka, all of the modern world’s currencies) don’t make good money.

You can see that most things people would consider good investments would not make good money… It’s certainly no coincidence that gold has kept its reputation as a store of value across millennia….” (“Why Even The 'Father Of Logic' Thought That Gold Makes The Best Money In The World,” Forbes, 4/21/17.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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