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Equities Market Perspective: Gold-has it lost its lustre?

06/09/2018

Gold posted its fifth straight monthly drop and has fallen almost 8% YTD despite escalating trade tensions and geopolitical risks. In this month’s update, Ritu Vohora, Investment Director looks at the strengthening dollar versus the precious metal, which seems to have lost its lustre and safe haven status.

  • Most equity markets and risk assets sold off in August although the global index posted positive returns supported by a US rally and a bounce in technology stocks globally.
  • The UK, Europe and Emerging markets all lagged.
  • Technology, Healthcare and Consumer Discretionary led sector performance whilst cyclical sectors lagged as investors showed a preference for assets with stable earnings.
  • Oil posted strong gains for the month with falling Venezuelan output and looming US sanctions on Iran driving prices up.
  • Style preference saw momentum lead again with value lagging across all regions.

Theme: Gold- has it lost its lustre?

  • Gold posted its fifth straight monthly drop and has fallen almost 8% YTD despite escalating trade tensions and geopolitical risks.
  • Rate hikes, low inflation, a strong dollar and buoyant stocks have sapped investor appetite for the precious metal, reducing it’s safe haven status.
  • Rising bond yields act as a headwind for gold as they serve as an opportunity cost of holding a zero yielding asset.
  • Gold is trading at its lowest level relative to the S&P index futures since the start of the global financial crisis in 2007/2008.
  • The strengthening US dollar will continue to be a key factor weighing on the prospects of gold.
  • What the Fed does next will be important – if the economy starts to slow or global risks start to pick up and if rates start to get priced out, this will be supportive for the precious metal.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Where past performance is referenced, please note that this is not a guide to future performance.

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