Gold outshines stock market, other assets in 2016

Brexit and Federal Reserve’s delay in increasing interest rates have made investors switch to safe-haven assets

Kazim Alam August 05, 2016
Brexit and Federal Reserve’s delay in increasing interest rates have made investors switch to safe-haven assets. PHOTO: FILE

KARACHI: With its price surging more than 26% in the international market since January 1, gold has outperformed nearly all asset classes in the first seven months of 2016.

The price of gold on Friday in the international market hovered around $1,340 per ounce, up over 26% from the beginning of the year when it stood at $1,060 per ounce. Earlier in the day it was close to $1,360 per ounce before dipping intra-day over US job figures.

Year 2016: Analysts continue to remain bearish on gold

According to the World Gold Council (WGC), this has been the largest continuous gain in the price of the yellow metal since the European sovereign debt crisis in 2010 and 2011.

“Gold has been one of the best-performing assets so far this year, outpacing all major benchmark indices and with comparable volatility to stocks,” it said in its latest market update.

KASB Securities commodities analyst Talha Mahmood said participants bought gold in the last 24 hours following an interest rate cut by the Bank of England. “Gains were, however, limited as investors turned their attention to the all-important jobs data,” he said in a research note issued on Friday afternoon.

Local perspective

Given the small size of the Pakistani gold market, local prices are determined largely in line with global trends. As a result of the bullish trend in the international bullion market, the price of the precious metal in the local saraf bazaar also rose accordingly.

A declining gold demand in Pakistan

Gold traded at Rs53,700 per tola (11.6 grams) on Friday, according to All Sindh Saraf and Jewellers Association (ASSJA) President Haroon Rasheed Chand. This was up 21.2% from the beginning of 2016 when its per-tola price was Rs44,300. However, it is expected to be lower on Saturday given the dip in the international rate.

Over the same period, the benchmark index of the Pakistan Stock Exchange rose 20%. This shows that gold has finally staged a comeback following a four-year bearish trend in the local market. Gold prices had remained almost flat in 2012-15, data compiled by ASSJA shows.

Speaking to The Express Tribune, Chand said the yellow metal is gaining strength on the back of poor economic indicators emerging from Europe and a slower-than-expected GDP growth in the United States.

“I foresee the gold price to hover around $1,400 per ounce by the end of the current year,” he said.

Rebound, finally

Unlike traditional buying and selling of gold biscuits in the saraf bazaar, gold-based mutual funds offer investors a standardised platform for regulated gold investing that is in sync with the international gold market.

All that glitters is invariably gold

International gold prices had dropped by as much as 11% last year, resulting in each of the three gold-backed mutual funds managed by Pakistani asset management companies posting a net loss in 2015.

But courtesy unforeseen events in the global economy, such as the UK referendum on exiting the European Union along with the continued reluctance of the US Federal Reserve to increase its key interest rate, investors are rushing to park their assets in “safe havens” like gold.

No wonder, gold-based mutual funds in Pakistan have also staged a comeback in 2016, with each of the three funds posting returns ranging from 12% to 15% for the last 180-day period.

“From Japan to England, central banks are cutting their benchmark interest rates while the Fed is shying away from the long-anticipated hike in its federal funds rate,” Atlas Gold Fund Manager Muhammad Umar Khan told The Express Tribune.

“Uncertainty exists in the global economy, which is helping gold gain strength,” he added.

Published in The Express Tribune, August 6th, 2016.

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