OpenMarkets Weekly: The Three I’s for Gold

At a Glance

  • Evidence suggests negative rates from central banks have had an effect on gold in recent years
  • Gold remains "a store of value that finds little competition"

Investors across the globe add gold to their portfolios for all kinds of reasons. Prices in the metal have increased nearly 14% since the start of 2019 despite continued strength in U.S. equity markets. This week, Jack Bouroudjian breaks down the traditional and unusual trends we’ve seen lately to explore why gold is still, in his words, “a store of value that finds little competition throughout history.”

In his examination, Jack looks at three I’s of what is driving the gold market:

Inflation:

Traditionally gold has acted as a hedge against inflation, and a weaker currency, and that trend has followed in 2019. “The purchasing power of gold cannot be debased by central banks’ printing of currency,” he says.

Instability:

Gold has long been connected to uncertainty over global events. Brexit, Hong Kong and Middle East instability continue to make news, and can influence gold markets.

Interest rates: 

Traditionally, the price of gold is not a function of interest rates, says Jack. But that’s changed in recent years as more countries move into negative yielding debt. The World Gold Council released a report that ties widespread negative-yielding debt to a rise in gold prices. “The change in interest rate policies and central bank action have had a bullish affect on gold prices,” says Jack. “The more negative debt issued, the higher gold prices moved,”

Watch the full episode of OpenMarkets Weekly above.

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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