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. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. 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 connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site www.erste-am.com within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.

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