Gold, The Ultimate Safe Haven Asset?

The sharp rally of Gold from December’s $1,046 low has shown a price hike of over 17% in a span of just a few weeks. In February 11, this precious metal traded at about $1,230. The sudden awakening of Gold from its slumber caught a number of people by surprise. Similarly, the stock market plunge lasted a lot longer than usual when it first started to drop. Clearly, the status of the precious metal gold as an ultimate safe haven asset has truly been maintained and confirmed, yet again. It also has benefited from the weaker dollar as the hopes for further interest rate rises this year have been dashed.

Janet Yellen, the chairwoman of the Federal Reserve, confirmed that there will be no more rate rises during her testimony on February 10th. Accordingly, the opportunity cost of holding the yellow metal, which has no interest, has dropped relatively. Thus, some investors are running back to gold as evidenced by increased inflows of gold-backed ETFs. The only thing that would stop gold would be a strong rebound of the value of dollar, which is very unlikely to happen in the near future. With that being said, some data will be released on Friday that may provide some support to the dollar. Meanwhile, stocks may rebound on a potential intervention from the central bank or when the oil bounces back.

On the other hand, the demand for gold in the last quarter of 2015 has jumped 4% year-over-year according to the World Gold Council. There is a 15 percent rise of investment demand while major central banks have increased their purchases by 25%. Because of a weaker demand in the first half of 2015, the total annual demand of gold last year was lower than 2014. The lower prices of gold, however, resulted to a rise in its demand on the second half.

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