Erste Asset Management

High volatility also in the price of gold

High volatility also in the price of gold
High volatility also in the price of gold
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Gold plays a role as a “safe haven” in times of crisis. But the price is anything but stable. 

The gold price gained +12.4% in USD terms or +16.4% in EUR since the beginning of the year (as of April 30th 2020, source: Bloomberg)

„Safe-Haven“ for investors

There were several reasons for this significantly strong performance. Stock market volatility has increased to record highs in recent weeks. Investors use gold as a safe haven due to the uncertainty triggered by the corona crisis.

While stock market indexes declined, gold prices rallied substantially. As a result of the large price increase global jewelry demand for gold has decreased. However, investor demand for bullion is currently strong.

According to data published by the US Commodity Futures Trading Commission (CFTC) large traders focused on short term gains were particularly active as buyers of gold futures in recent months.

This may explain the recent expansion of intraday volatility in gold prices. It shot up rapidly from the end of February and in the meantime stands at an extreme level which even stock market indexes rarely reach.

Central bank policy supports gold price

The Federal Reserve has cut interest rates twice in recent weeks. The target range for the federal funds rate currently stands at a mere 0-0.25%. Rate cuts are supportive for the medium-term uptrend in the gold price as they lower the opportunity cost of holding gold due to foregone interest income.

The current world-wide expansion of central bank balance sheets is a positive driver that suggests an increase in gold prices over the medium term. Concerns over rising government debt funded by central bank debt monetization motivates investors to buy gold, as gold harbors no credit risk.

Outlook: upward trend intact

In view of the sizable increase in financial market volatility, investment demand for gold is likely to remain strong. Recent rate cuts in the US, low bond yields all over the world and a likely depreciation of the US dollar are all positive factors suggesting a moderately rising gold price.

The significantly increased economic uncertainty and the still high volatility on the stock markets support the upward price trend. The upward trend is also technically intact. It should continue in the medium term, but probably less pronounced than in April.

Legal note:
Prognoses are no reliable indicator for future performance.


Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website A summary of the investor rights is available in German and English on the website and can also be obtained from the Management Company.

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N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

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It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

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