A deepening global trade war is failing to stir gold investors, despite the metal’s reputation as a venerable haven asset.
In the midst of volatile stock markets and rising tensions between the US and China, gold has fallen to its lowest level in more than six months. Year-to-date gold is down 4 per cent.
Traders remain firmly on the sidelines, as the chart shows. Aggregate open interest on the Comex gold futures exchange in New York, which measures the number of futures contracts outstanding, has fallen to the lowest level since 2016.
For investors there have been few catalysts to buy gold this year as the dollar has strengthened. US interest rates have risen steadily since January and with a three-month Treasury bill yield at 1.92 per cent, that makes holding gold less attractive since the metal provides no fixed income return.
Inflation has also been slow to materialise despite higher oil prices and weaker emerging market currencies. Gold is often bought as a protection against inflation.
Investors say a rebound for gold may require a stronger macro shock in the coming months.
“The global economy has moved from a confident narrative of synchronised global growth to a much messier and fractured picture, both in terms of growth and trade tensions,” says James Luke, a fund manager at Schroders in London.
“These macro risks potentially feed into a much more difficult environment for risk assets that could catalyse diversification into gold, even absent a turnround in the dollar.” - ft.com -