Gold investment jumps on spike in global political tensions

Gold has long been recognised as a safe haven, an asset that investors seek out for protection and security during uncertain times. As our Director of Market Intelligence, Alistair Hewitt, put it in a recent interview "Gold historically benefits from flight-to-quality inflows during periods of heightened risk and, by providing positive returns and reducing portfolio losses, gold has been especially effective during times of systemic crisis when investors tend to withdraw from stocks."

That certainly seems to have been borne out over the last week, with the US$ gold price reaching a seven-year high.

Accordingly, the recent escalation of tensions on the global stage has reportedly sparked a fresh wave of gold investment in the UK. A statement by the Royal Mint attributed a 572% increase in sales revenue and a 416% increase in average order value at its Bullion division last weekend to the outbreak of violence and increasing hostility between the US and Iran.

Consumer research confirms that this is far from being just a UK phenomenon. Our global survey of 12,000 retail gold investors from North America to China, via Germany, India and Russia, showed that 44% of investors who had bought gold in the last 12 months did so in response to risk factors. And gold was their top choice of investment product with which to manage risk, ahead of even government bonds.

 

This is echoed in the role that retail investors see gold playing in their portfolio. On average, 30% of global retail investors who own gold say that its main role is to protect their wealth.

 

Our recently released report confirms that risk aversion was also a key driver of inflows into global gold-backed ETFs in 2019, contributing to the 400-tonne increase in holdings of those products over the year.

Interestingly, we see similar attitudes driving the behaviour of gold jewellery products. Gold serves a dual purpose: its inherent value means that consumers buying gold jewellery often view the purchase through an additional investment lens. And, of the 6,000 jewellery consumers surveyed in our research, 65% said they trust gold more than the currencies of countries. Almost the same number agreed that gold makes them feel secure in the long term.

While the US-Iran crisis appears to be stepping back from the brink, tensions remain high and could continue to drive gold investment: indeed, we have recently highlighted financial and geopolitical uncertainty as a key potential driver of gold demand for 2020. Combined with the continued low-rate environment and continued robust buying by central banks, we expect that investors will continue to value gold’s safe haven qualities over the year ahead.