Does gold qualify as a mere object of speculation?

News Arnulf Hinkel – 18.08.2016

Given the increase in the gold price by 27 percent since the beginning of the year, one may well get the idea to see gold not only as a safe haven and important stabilising factor in a securities portfolio but also as a genuine yield factor. The current situation on the global capital markets as well as several political question marks – What will happen in the EU post-Brexit? What will happen after the presidential elections in the US? – are still upping the expectations regarding the gold price: analysts of the Bank of America do expect an increase of the US Gold price from currently just shy of US$1,350 up to US$1,500 per ounce, provided that the Fed will not have increased the base rate by then. As the World Gold Council announced just recently, fund managers for exchange-traded commodities have purchased 540 tons of gold, equalling a value of some €20 billion, this year alone – the largest purchase of gold since the Lehman Brothers bankruptcy in 2008.

At the same time, there are clear signs that many investors are hoping for gold prices to decrease, thus postponing their purchase plans. Among others, Wolfgang Wrzesniok-Rossbach, CEO of Degussa Gold Handel GmbH, is ready confirm this fact and reports that the gold purchases/sales ratio has recently halved: Usually, six times as much gold is bought than sold over any given period. Currently, however, the ratio has moved closer to 3 to 1. The reason might be that investors know very well that any return that gold can generate has to be realised solely through price increases, since gold offers neither interest, as money market products and bonds do, nor dividends, as stocks do. Investors planning to purchase gold solely for speculation purposes have to be aware of this – and also of the fact that the precious metal may be exposed to high price volatility, which has repeatedly been the case in the past.

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