The Strategist

Concerns over global economy result in investors' gold fever

02/05/2020 - 07:58

The total weight of assets of world funds investing in gold have updated their historical maximum, exceeding the mark of 2.57 thousand tons. The record is updated against the background of information on the coronavirus spread in the world, which could adversely affect the global economy. International investors are moving away from risky assets into defensive ones such as gold.

Bullion Vault via flickr
Bullion Vault via flickr
The assets of exchange-traded index funds investing in gold have updated the historical maximum set on December 20, 2012. According to Bloomberg, on February 3, the figure climbed up from 1.4 tons to 2574 tons. Since mid-January, assets have grown by almost 46 tons. International investors resumed buying gold right after signing the first phase of a trade deal between the US and China on January 15. The parties signed an interim agreement, but it did not resolve a number of key issues; investors remained worried about the prospects for the global economy, which resulted in an increase in investments in protective assets.

In the third decade of the month, the rapidly spreading coronavirus in China added to investors’ worries. According to Capital Economics, China's economic growth in the first quarter of 2020 will slow to 3% compared to the previously expected 5.7%.

The surge in interest in the precious metal by professional investors has had a limited impact on the price of gold. On Monday, the price of gold rose to $ 1,591.46 per troy ounce, which is almost 3% higher than mid-January. On Tuesday, prices fixed at around $ 1,557.8 per ounce, rolling back from a local maximum of 2%. According to Carsten Menke, Head of Future Research at Next Generation Bank, Julius Baer, current investor demand was not enough to force gold quotes to rise above recent highs. This is because the spread of the virus also has a negative effect on gold demand in China.