Is 2015 the right time to invest in gold
"Is 2015 the right time to invest in gold?”
If the first several weeks of 2015 has taught us anything, it’s that the era of cheap money is well and truly alive. So far this year, up to 20 central banks have either cut interest rates and/or expanded their monetary printing programs, as a bulwark against slower growth, crashing oil prices and low inflation.
With all this in mind, 2015 is shaping up as a good year for investors to increase their gold exposure.
Gold, which does best in ultra low interest rate environments, will benefit from a number of factors going forward, including:
- A Hedge against market volatility: Demand for gold typically rises whenever there is elevated market risk. There has been a lot of this in the past 15 years (NASDAQ crash, subprime, GFC, US debt ceiling, Euro ‘break up’ fears). With markets at all time highs despite the myriad of unresolved economic challenges, expect this volatility to remain part of the investing landscape for years to come.
- Pro cyclical consumer demand from Asia: In the last great gold bull market of the 1970’s, nearly all the demand came from North American and Western Europe. Today. Nearly 70 per-cent of annual physical gold demand comes from Asia and the middle east, with China and India the two major drivers. This demand is driven by rising incomes there, and will only strengthen further in the coming years.
- Central Bank Demand: In 2014, central banks bought close to 500 tonnes of physical gold, about 15% of total gold mined. It was the second largest annual aggregate purchase in 50 years. This represents a continuation of a trend that changed when the GFC hit. For 20 years prior, central banks sold gold. Now they’re back as buyers, something that will continue for years
- Safe haven demand: Whenever there is a geopolitical flare up – the demand for gold typically rises. In the past 15 years we’ve seen this with Sept 11, the Iraq War and the Arab Spring. Sadly, as current events unfolding in Crimea highlight, these kind of tensions are likely to be present for years to come, again underpinning gold demand.
- The Return of inflation: As it stands today, developed market inflation is at almost record lows. With the debt problems of the developed west unable to be solved through economic growth alone, inflation will be the only way out. When it finally returns, the demand for gold will rise substantially.
The bottom line to this is that any investors positioning themselves into gold in 2015 are likely to do very well out of their investment in the coming years.