Gold gains after publication of Global Financial Stability Report

News Arnulf Hinkel, financial journalist – 29.10.2018

Twice a year, the International Monetary Fund (IMF) assesses current and future market risks and publishes the findings in their Global Financial Stability Report (GFSR). After an increase in short-term risks had already been noted in their April GFSR, the IMF reported an increase in systemic market risks in its second report on 10 October 2018. This led to significant market movements, highlighting the importance of gold in an investment portfolio once more, according to the World Gold Council.

Increase in systemic risks gives gold a boost

Following the publication of the report, the stock markets in Europe fell by 3 per cent within three days, and by as much as 4 per cent in the US and Asia. The US gold price initially remained stable, then rose significantly. In its report, the IMF had specifically drawn attention to the increase in tensions in world trade, increased problems in emerging markets, and the overheated US stock market. According to the World Gold Council, the CAPE ratio, the inflation-adjusted price-earnings ratio, is currently extremely high; the only time the CAPE ratio was higher was just before the burst of the dotcom bubble.

Gold price in euro up 6 per cent since late September

A gram of gold cost €32.60 on 27 September and had risen by almost €2 to €34.56 by 23 October 2018. In addition to the global risks highlighted in the 2018 Global Stability Financial Reports, the EU's internal crisis over the Italian state budget, threatening the stability of the EU beyond Brexit, has also been adding to the market risks in recent weeks. However, during this period the euro also weakened against the US dollar, which further strengthened the gold price. According to the World Gold Council, the market movements of the last two weeks clearly show the importance of gold as an asset against the background of unsolved geopolitical problems.

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