Stephen Vines

The View | Why gold is not glittering yet for investors although all signs point to an impending market downturn

Stephen Vines says gold, the traditional safe haven in times of market upheaval, seems to be performing poorly despite the US-China trade war, political instability in Europe and currency depreciation in emerging markets

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A worker shows off gold foil roses, a popular Valentine’s Day gift, at a shop in Yantai, in east China’s Shandong province, in February 2016. Chinese consumers tend to have a high appetite for the noble metal. Photo: Xinhua

Stephen Vines

Published: 10:45am, 26 Sep 2018Updated: 10:33pm, 26 Sep 2018

What on earth has happened to the concept of safe havens in the world of investing? More specifically, why has the performance of the gold price been so lacklustre at a time when political and economic uncertainties are mounting?

The list of uncertainties is impressive, ranging from the impact of the ever escalating US-China trade war, the enormous level of political instability in Europe where only one significant country – France – has anything approaching a stable government, and anticipation of the Brexit disaster only makes matters worse. Then there’s the spectacular collapse of currencies in places like Turkey and Venezuela, accompanied by less spectacular but none the less impressive currency dives elsewhere.

At times like these, the lure of gold, as the ultimate store of value, usually takes centre stage. Indeed, many gold pundits were convinced that once the price of gold reached the US$1,200-an-ounce mark, the metal was set for an upwards trajectory. Instead, the price has stubbornly hovered around this level since this breakthrough came in August.

Even though there is no big financial crisis right now, the possibility cannot be excluded. It is instructive to be reminded of what happened to gold in 2008, during the last big financial crisis when, by the year end, the price of gold stood at around US$870, rising to US$1,087 by the end of 2009, an upward trend that lasted until 2012.

With hindsight, it seems like a no-brainer to have concluded that an ideal moment to buy gold would have been once the massive stock market run ended in 2008.

Customers inspect jewellery at a shop in Hong Kong on July 31. There is a much used private trading system for gold investors in the city. Photo: Felix Wong