Gold’ safe haven is back

Announced in early September, gold’s price rise is not a surprise.

Publication en français sur Les Echos Le Cercle

It’s done! Announced here in September , it was only one month at the beginning of October to see the price of gold start to rise, then upswing steadily until the end of 2018, and continue to progress in early 2019.

Below $1200 in September, gold has been flirting with $1300 in recent days, +10% in 4 months.

Two reasons, already listed in September in “Crises, but no gold as a safe haven, not yet…”, have been confirmed.

Well beyond the Bitcoin rout, the FAANG, or Tech, had superb yields that firmly covered any increase in gold. But the lid fell over. The flows went from gold to Apple, they reversed now from Apple to gold.

The second event is related to real interest rates. The pause in the restrictive US phase reflects an implementation in an unexpected, disrupted and unpredictable context.

Let us add the consequences of Brexit which, as everybody knows, is not going very well and encourages gold protection in the over the channel; not to mention the increased purchases by central banks.

Once again, hope of growth or fear of crisis, are the two elements of the consubstantial bipolarism of the gold markets. On the crisis side we have been served: Washington-Beijing trade war, European identity crisis, governments that no longer hold their ground, or take nationalist paths with no horizon, various tensions linked to the new world order less united and more solitary in the West, more organized and grouped in the East…

Fears of a crisis expressed by a rise of gold prices being better than a fear that is stirred without demonstration (or by violence), we are also satisfied by that side.

Since October, German, Japanese and US bonds have been in demand as much as Gold ETFs, whose volumes have risen sharply.

Because gold is no country’s currency, no one’s debt, no economic, legal or geopolitical sanctions, gold prices in Beijing are approaching the highs of 2016 in yuan; in Australian dollars, they are at the highest historical highs and indicate that it has never been so profitable to produce gold in Australia; In London, prices exceed £1,000 while at the peak of 2011 they peaked just above £1,180; in Delhi, prices are close to 90,000 rupees while they peaked above 95,000 rupees in 2012. Faced with this turmoil, gold in euros is placid, our currency is strengthening its international base; but what will happen during the European elections?

The recourse against an increase in gold prices would be a decrease in demand and/or an increase in production.

Part of the demand is subject to the above-mentioned crises, it will not be of any help.

Modern mining production is the result of a pact between industry, human rights and the environment. Pact enriched in the major mining codes by the environmental, social and governance obligations of mining companies. However, since it is increasingly embarrassing to justify the displacement of a community because of a future gold mine, gold reserves (in mining meaning) are low, and in this context a question: do they have a chance to rise in the short term (i.e. 10 years)? Probably not.

In conclusion, if neither demand nor supply offers any relief, is not the rise in gold prices a weak signal for a future major increase in gold mine prices?

Didier JULIENNE

Linkedin: Didier Julienne

Twitter:  @didierjulienne

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