Gold has risen another 1.7% in British pound terms this week and is 1.8% higher in euro terms and is again acting as a hedge against currency devaluations, Brexit, eurozone and heightened political and geo-political risk in the UK, EU, U.S. and most of the world.
Gold is marginally higher in dollar terms this week after surging on the open in Asia on Sunday night. Gold quickly rose 1% from $1,251/oz to $1,264/oz as China and the Shanghai Gold Exchange (SGE) began trading again after being closed for the Chinese Golden Week.
Since then gold prices moved lower despite the return of the world’s largest gold buyer – India – as seen in the return of gold premiums in the Indian gold market. Gold in dollar terms is now marginally higher for the week.
Goldman Sachs has long been the most vocal, prominent and widely quoted bear in the gold market. However, in recent weeks there is a marked change in their tune and they are now bullish on gold in the medium and long term. They are concerned about further price weakness in the short term as we run into year end but believe this will be a buying opportunity.
Goldman is now saying that the precious metal will be good to own in an environment of “political uncertainty” ahead of the November elections.
Goldman Sachs Head of Commodities Research Jeff Currie told CNBC’s “Power Lunch” this week that it is good to own gold in our current political state.
“I always like to say gold is a great hedge against politicians, and we have a lot of political risk in the market right now. So gold has a strategic purpose,” he explained.
“Why? What’s the tie between gold and politicians?” Brian Sullivan of CNBC asked Currie.
“Well, if you think about the correlation between rates and you think about when you debase a currency or weak dollar, what people gravitate to are hard assets and gold is the epitome of the hard asset,” Currie explained.
In a recent note, Goldman analysts Max Layton, Mikhail Sprogis and Jeffrey Currie wrote:
“Indeed, we would view a gold sell-off substantially below $1,250 an ounce as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth.”
The bank also believed Chinese investment demand for gold may pick up after the current selloff, particularly from medium to long-term asset allocators.
“The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls, and purchasing gold as a way of diversifying away from the property market, which has this year to date had a remarkable rally (with the government moving to rein in speculation and price growth),” the analysts added.
‘Peak gold‘, the largely unappreciated phenomenon of peak gold production is also another bullish fundamental factor that Goldman has written about.
Given the particularly poor caliber of politicians in office and seeking office in much of the western world today, author, political activist and intellectual George Bernard Shaw’s witty quote regarding voting for gold, rather than for politicians and governments is very apt today.