Gold in focus as North Korea weighs on minds

Single day sales of gold by investment firm The Pure Gold Company jumped 125% on 9 August on the back of increasing tensions between the US and North Korea, it has said.

And much of the sales were driven by investment professionals, according to CEO Josh Saul, who said: “Over 65% of all physical gold purchases came from financial services professionals, including those in banking and accountancy, concerned that global equities will be hit if relations between the US and North Korea deteriorate further. The stock market slid yesterday and the gold price increased by more than 2% on the back of president Trump and North Korea’s exchange of words.”

Saul added that as a key ally of the US, the UK risked being dragged into the conflict, hence increasing interest in using gold as a hedge against short term geopolitical risk.

“Over the last two days, we have also seen a 72% increase in people removing exposure to global equities within their SIPP [Self Invested Personal Pension, a UK fiscally defined regime for personal long term savings] and pension to purchase physical gold within the same vehicle. Clients who are within a few years of their retirement are concerned that their pension could lose considerable value because of the threat of war and conflict. Pensioners don’t have the luxury of time to wait for their stocks to rebound after a potential equity crash and so the general sentiment is that many would rather convert their gains in the stock market to take advantage of gold investment which is still 20% lower than its peak of 2012. Our clients are not purchasing physical gold to necessarily grow their wealth, the objective is safety, security and wealth preservation.”

A day earlier, Ned Naylor Leyland, manager of the Old Mutual Gold & Silver fund at Old Mutual Global Investors noted that the war of words between the two aforementioned countries was causing increased buying beyond the typical fundamentals around gold and silver.

“In the event that war should break out, and that leads to an acceptance of further loose monetary and fiscal policy in the US, we would expect a falling US dollar real yield environment, giving renewed, and sustainable, impetus to monetary metals prices,” Leyland said.

“Institutional investors appear to be, once again, considering an allocation to gold.  Current institutional allocations are at their lowest, relative to historic levels. Should they start re-allocating, we believe a big move in global gold prices will inevitably ensue. Gold, of course, is already a core asset class for central banks, the super-rich and what are classified as ‘the global poor.’ Should the North Korea situation develop it may just prove to be the catalyst to push the institutional world to commit flows back to this asset class on a sustained basis.”

A week ago, despite noting that the dollar price of gold had risen 8.9% in the year-to-date to the end of July, BlackRock said in its weekly gold report that given the typical inverse relationship between the US currency and the price of the commodity, “some have been surprised that gold isn’t up more since the start of the year, given the weakness we have seen in the dollar”.

In terms of closed ended funds, ETFs, buying physical gold this year has seen weaker demand, according to figures from the World Gold Council.

It said that Q2 2017 saw 56 tonnes acquired this way, compared to 237 tonnes in the same quarter a year earlier.

Another area of key demand in the market for gold is in India, where the industry has responded positively to that country’s new Goods and Services Tax, GST, which was introduced on 1 July this year, and which replaces myriad taxes imposed at the state and federal level across different sectors of the economy previously. For gold the implication is that a new 3% GST rate replacing the previously discrete VAT and excise duty, is better than previously feared. However, the WGC also notes that tax overall on gold in India has been increasing over the past five years.

According to further WGC figures, the official gold reserves of India held constant over the three years to Q4 2016. By contrast, China’s official reserves increased by about 80% over the same period.

 

ABOUT THE AUTHOR
Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 16 years he has been based in London writing about funds and investments . From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope.

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