• This section is normally a bit dull, oil marches up and down a bit blah blah but Gold remains in the doldrums, a bit of an afterthought blah blah. Not this time.
  • Charge!! The gold bugs are on the march. In a tempestuous, fearful world looking for safe havens all that glitters is gold. The core objection to gold has always been that it is a speculation not an asset as it does not pay any yield and as such it tends to have a negative correlation with US Treasuries, the lower the real bond yield the better gold compares. With bond yields everywhere tumbling, and even negative in Japan across most of the Eurozone, then the income argument against gold disappears and it in effect behaves like a classic strong, safe haven currency. Gold has spent most of the last few years trading in a tight range around US$100/oz, last quarter it shot through US$1500/oz.
  • In fact, there has been a stealth bull market going on in Gold for UK investors over the last few years because even though Gold is denominated in dollars it is actually bought by investors in their own domestic currency. Gold is currently trading around $1500/oz, well below its peak of $1920/oz in September 2011 at the height of the Eurozone crisis but the strength of the dollar is such that that Gold is actually at all-time highs in sterling, yen and euros and many other currencies. Sterling having fallen calamitously by a third against the dollar in the last five years so all US assets, be they US equity funds or Gold, have all had a huge boost for sterling denominated investors.
  • From Gold to Black Gold. Oil had fallen back below US$60/bl and looked to be going lower with demand growing at its weakest for a decade and with US shale turning a profit at US$35/bl then there is massive oversupply in the market. Enter, yet again, geopolitics in to the financial markets as the drone attack on Saudi oil refineries removed 6% of global production at a stroke causing oil prices to spike to at one point as much as 20% in the immediate aftermath, the biggest single rise in a day since the invasion of Kuwait in 1991. The Brent price quickly fell back towards US$60/bl by quarter end as Trump responded by releasing some of the US oil reserves but the actions of a more belligerent Iran marks a return to a political premium in the oil price.
  • Energy and mining company shares have benefitted from the rise in the underlying commodities and in the general ‘risk on sentiment’ prevalent in financial markets this year. The bell weather JPM Natural Resources Fund has risen a pleasing 16% so far this year. Gold mining shares of course have gone tonto.

Summary: Gold has had a resurgence, breaking through the US$1500/oz for the first time in six years being a beneficiary of lower US interest rates, collapsing global bond yields, a stalling US dollar and in particular the search for safe havens. Oil faces the headwinds of oversupply and slowing demand though the attack on the Saudi oil refineries marks a return of a political premium to the price.

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