Gold prices have suffered their sharpest fall in 30 years over the last couple of days, heightening fears among investors that the decade-long bull run for precious metals, especially gold, is about to end. The dramatic development started on 12th of April with 15thof April as the ugly black Monday for gold lovers. Gold has traded steadily between 1550 and 1615 during the first months of 2013, and then suddenly plunged USD 200. Shocked investors took a deep breath after losing confidence in the metal for which many thought that the sky was the limit.
The volatility of market sentiments was demonstrated early Monday morning as investors debarred gold from its safe haven status in just a few short hours. As a result of the lost confidence in gold, the Japanese Yen (JPY), which had been suffering for the last few months due to aggressive Japanese economic stimulus and monetary easing, briefly regained its position as a safe haven candidate.
The safe haven rally was short lived; USD/JPY jumped from a low 96 to above 98 yen to a dollar in just a few hours. Following a technical upward correction after the steep fall, markets continued to be extremely nervous, showing some similarities with market behavior in 2008 prior to the financial crisis that autumn. After a short rebound the selling pressure on gold continues.
Close market followers could have noticed signals that investors were becoming increasingly skeptical about gold. For many years, it has been taken more or less for granted that gold is going to continue to rise and shine. However, if we look back at the gold graph of the last couple of years, we can see that there have been some worrying signals. Gold prices peaked and reached USD 1406 in early January 2011. There was a technical correction down, but between February and September gold prices rose steadily to USD 1920. A breakthrough of the magic psychological 2000 level seemed to be within reach and many investors betted on that opportunity.
Instead, gold started to correct down steadily and moved sidelong before reaching an autumn peak at 1787 on October 1, 2012. It has been falling down since October with minor upwards technical corrections until it reached 1321 and rebounded to 1382. With the existing strong selling pressure and weak market sentiments there is no reason to believe that USD 1350 represents a bottom.
In addition to the charts, which show a steadily falling curve since September 2011, there have been other reasons for concern. Major international banks have recommended selling gold. There might be numerous reasons why Goldman Sachs, Credit Suisse and Societe General are all in favor of liquidating gold reserves.
The erratic and speculative way international banks have operated over the last few years, from manipulation with labor to excessive greed, demonstrated in both trading and investments, makes one ask, whether their recommendations are a new expression of speculative behavior to their own best benefit? Are gold sales boosted up, so certain market players can buy the precious metal back at strongly reduced prices?
When George Soros recommends selling as he did a few weeks ago, when gold prices were USD 1615, there is a stronger reason for an alert.In spite of the fact that Soros operates on behalf of his own institutions, he was first and foremost considered to be an individual investor. Since the 1960’s it is a good idea for the markets to listen to his predictions and advices. Two years ago, Soros recommended to sell silver for USD 45, after its steady climb from USD 17 a troy oz. Silver peaked at 49,67 and has been continuously falling since, reaching a low of 22,65 on Monday, April 15th, 2013.
Where does gold go from here?
In a short-term perspective, the technical upside correction already seems to have subsided. Gold simply seems to have no steam to lift the precious metal beyond the USD 1400 limit. There is no inflationary pressure to strengthen gold. Ever record-high US stocks have seen gold selling in favor of investments in stock markets, which as long as the monetary easing continues will be a far more interesting investment than placing money in the risky precious metal with market sentiments against it.
The opportunity for central banks selling their gold reserves to finance own assets requests from international lenders as the European Central Bank (ECB) and the International Monetary Fund (IMF) added to the selling pressure on gold. This development was spurred by tiny Cyprus, but the idea was picked up by central banks in countries like Italy and Spain that are also under big pressure.
There are, however, more optimistic outlooks pointing to a strong gold recovery at the end of 2013, even if most analysts seem to agree that it may take time before investors‘ confidence returns to the precious metals market. Gold is on the verge of being oversold. An oversold market shall create a tighter supply/demand fundamentals relation.
Even if stock markets continue to raise, these rallies are artificial and are more based on monetary easing than on economic fundamentals. What is going to happen when the bubble bursts? Could gold then be back shining, considering that some central banks in emerging countries are buying gold to strengthen their reserves?
There might be light in the tunnel for gold prices in the medium and long-term perspective.
Having different opinion on future prices for Gold? At MAYZUS you can test your judgments, read more here.
About the Author:
Arne Treholt, Vice President, Business Development Director at MAYZUS Investment Company
Mr. Treholt began his career as a journalist and foreign correspondent of the Oslo-based daily newspaper Arbeiderbladet in Norway. He then joined the Norwegian Royal Ministry of Foreign Affairs, where he was promoted to the position of Political Secretary to the Minister of Shipping and Foreign Trade, followed by his position as Deputy Minister of Law of the Sea. He held the position of Counselor for Economic Development and Social Affairs at the Ministry of Foreign Affairs, and was member of the Norwegian Mission to the United Nations, New York. Mr. Treholt retired from his diplomatic career and moved to Moscow, where he became CEO of ISMOS Trading, followed by his position of CEO of Rim Investment Management and FMC Securities in Cyprus. Mr. Treholt joined Mayzus Investment Company in June 2009 as Vice President, and he is also in charge of the business development and portfolio asset management of the company. He is the author of five books and numerous articles on economics and politics.
What should I invest and How do I invest
By Imogen Clarke, The Fry Group
With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.
For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.
If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.
There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?
With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:
Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.
So, how do you decide where to invest?
According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.
The main areas of ESG investing include:
- Environmental challenges (climate change, pollution, etc)
- Social issues (human rights, labour standards, child labour, etc)
- Governance considerations relating to company management
According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”
ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.
As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”
So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?
There are four areas of ESG investing:
- Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
- Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
- Positive screening strategies:when companies meet the ESG goals and are approved for investments.
- Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.
You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?
Investment Roundtable: Live with Jim Bianco
With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.
- Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
- Identify important intermarket relationships he is watching with respect to Global Equities
- Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.
Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.
Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.
At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.
The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March. As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.
These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.
The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term. A rise in the unemployment rate to 8% or so later this year still looks quite likely.
Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.
Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.
Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.
It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.
All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.
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