Gold still a firm safe haven for investors in a troubled economy

Investors remain plagued by the turbulent world economy and seek shelter in gold, as this morning’s performance of the metal shows. The gold price went through the $1700 level this morning and the fundamentals remain in favour of it reaching our forecast

We view gold as the ultimate currency and safe haven during this period of slowing global growth. Part of the reason for this morning’s rise in the price can be ascribed to anticipation about the European Central Bank’s possible support for the European Union. However, it also enhanced fears for an over-leveraged global economy and inflationary spike. These conditions make investors reach for the safety of a tangible asset rather than rely on paper currencies to protect their wealth.

Other factors supporting the yellow metal include accommodative policy in the US – reducing the dollar’s attractiveness – and the fact that other safe-haven assets are in short supply, with the Swiss Franc pegged and Australian dollar falling on commodity weakness.

In an investor portfolio, gold offers diversifying benefits as it is uncorrelated with other asset classes. We remain bullish on the prospects for the commodity as well as gold equities.